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oster
02-01-2017, 08:11 PM
Looking at my first investment property. My thoughts are condo DT, however the vacancy rate is crazy right now so don't want to be eating those costs for too long. Other option I was considering was a place by UofC, easy rental, on the cheaper end of the budget etc.. but not as much upside long term. Starter home is also in the equation...

Where would you guys be looking if you had a budget of $300 - 400k.

roll_over
02-01-2017, 08:15 PM
My current experience:

Rental in the keynote, 2 bed, 2 bath, fully furnished with high end furnishings and decorated professionally to maximize the space. In peak time was being rented for $3100, currently sitting vacant at $1800. Last tenant broke lease after 4 months.

I’d wait unless you got something at a screaming deal.

ercchry
02-01-2017, 08:19 PM
Tough right now for sure, what's your current property like? Decent equity in it?

Lowest risk would be to shop around for a tenant for that property and move into a new place yourself, which buying right now has potential for some decent upside as it's feeling like the bottom might be in (but rental market will probably lag behind for a while)

nobb
02-01-2017, 08:22 PM
Almost none of the condo/apartment condos cash flow positive, unless you get a screaming deal. Not to mention that you never know what special fees you might get hit with or rising condo fees. Not a good long term, hold it and forget it investment IMO.

I kind of like small houses where you get a nice low maintenance family in there. Not going to have as much potential for cash flow as a slumlord sort of deal, but it's much easier to manage. Regardless of house or condo, if you target the lower end, you end up getting lower quality people which require MUCH more effort managing.

oster
02-01-2017, 08:38 PM
Ya thats what I'm worried about...

Won't be seriously looking for a few more months still. I'll have the option of living in it too since I'm coming from out of province, but that wouldn't be ideal.

Feel like the housing prices have bottomed but renting will obviously still be an issue.

Buster
02-01-2017, 08:57 PM
If you want RE exposure, buy a REIT.

Residential RE is a hugely over-rated asset class for the average Joe. I honestly think it's so popular because it's one of the few ways that an Average Joe can participate in leveraged investments (try getting an investment dealer/broker to give you 5:1 leverage on your account). More leverage is more risk. And it is hard, even in decent times, to get actual cash flow on a property when you fully load the nickle-and-dime costs.

nobb
02-01-2017, 09:08 PM
What's a realistic return on the typical REIT fund and how would it compare to just passively invest in the index?

If you factor in equity and neglect appreciation, a properly managed (and chosen) residential rental should still exceed the returns you would get from a safely diversified index fund (5-7%).

ercchry
02-01-2017, 09:14 PM
Basically all lenders still let you get away with one rental, which if it started life as a primary is usually well worth it return wise if you put down less than 20% originally, plus having a few years of appreciation and equity into it. But I'd agree that having a portfolio of 20%+ down payment investment properties isn't always the best use of money, some markets sure... but after management fees and maintenance... blah

Buster
02-01-2017, 09:34 PM
Originally posted by nobb
What's a realistic return on the typical REIT fund and how would it compare to just passively invest in the index?

If you factor in equity and neglect appreciation, a properly managed (and chosen) residential rental should still exceed the returns you would get from a safely diversified index fund (5-7%).

That argument is MUCH harder to make if you adjust for risk and/or volatility. Or your labour to manage the place (the value of which cvaries widely).

88CRX
02-01-2017, 10:05 PM
Don't do it!

Tenants are a pain in the ass. If you can even find one.
You pay income tax on the monthly principal payment.
You pay capital gains if property value goes up.

Xtrema
02-01-2017, 10:44 PM
Originally posted by oster
Where would you guys be looking if you had a budget of $300 - 400k.


$400K, 50% down, $200K mortgage, 30 years, 2.5%

Mortgage Interest: $410
Condo Fee: $500
Property Tax: $180

Your cost = $1090.

$1600 rent - $1060 cost = $510 profit (but positive cash flow of only $140 since most of that is in mortgage's principle payment)

Vacant for 2 months = $5100/year or a 2.6% return if you yourself works for free and nothing breaks.

Here's the problem, condo and apartment is slowly reaching 9 months supply and will soon hit 1 year as more units comes on market. Job prospect isn't going to be great until 2018. There is no shortage or condos available.

Not only you have to fight other landlord for tenants, you also can't off load the unit if you want to get out of the game.

And I don't see how you would be cash positive if you don't have 50% down.

88CRX
02-01-2017, 10:56 PM
Originally posted by Xtrema



$400K, 50% down, $200K mortgage, 30 years, 2.5%

Mortgage Interest: $410
Condo Fee: $500
Property Tax: $180

Your cost = $1090.

$1600 rent - $1060 cost = $510 profit (but positive cash flow of only $140 since most of that is in mortgage's principle payment)

Vacant for 2 months = $5100/year or a 2.6% return if you yourself works for free and nothing breaks.

Here's the problem, condo and apartment is slowly reaching 9 months supply and will soon hit 1 year as more units comes on market. Job prospect isn't going to be great until 2018. There is no shortage or condos available.

Not only you have to fight other landlord for tenants, you also can't off load the unit if you want to get out of the game.

And you pay income tax on that $510/month. No more cash flow!

Xtrema
02-01-2017, 11:01 PM
Originally posted by 88CRX


And you pay income tax on that $510/month. No more cash flow!

True but that's next year's problem. :rofl:

May be op is taxed at lowest bracket.

Sonic
02-01-2017, 11:05 PM
Canmore

88CRX
02-01-2017, 11:28 PM
Originally posted by Xtrema


True but that's next year's problem. :rofl:

May be op is taxed at lowest bracket.

If he has a $200k down payment he's not lowest tax bracket lol.

Sugarphreak
02-02-2017, 12:14 AM
...

max_boost
02-02-2017, 12:19 AM
DT condos forget about it bro. You gotta be crazy in the current market.

ercchry
02-02-2017, 12:24 AM
Originally posted by Sugarphreak
I've noticed that most condo's in Calgary have WAY too high strata fees

IMO a nice investment would be a townhome/rowhouse in the Aspen Woods area for that price. Easy low-cost maintenance, and it should see the largest growth in price when compared to the rest of Calgary in the next couple of years IMO.

Should checkout fort mac... townhouse fees there are on par with condo fees here :barf:

The BMW Guy
02-02-2017, 09:07 AM
Here's my take on it.

I bought an investment property back in 2013. Put down 20% on it with a low interest rate.

This was during the boom times so it was very easy to get wonderful tenants (I didn't even have to show the place to my first tenant, that's how good of a candidate he was). During 2013-2014 the property actually cash flowed positive $300 a month (this is after paying condo fees, property tax, mortgage, HOA, insurance, etc.).

With the current rental market/interest rates, the property is just breaking even ($0 cash flow after paying the items mentioned previously).

If you account for the mortgage principal as a return on the 20% down, I've averaged about 15% annually over the last 4 years on the property. About 10% right now during bleak times, and as high as 20% during the good times.

I’ve been lucky to have wonderful tenants and minimal maintenance on the property (newer townhouse). The property is also near a new development, so I’m hoping its value will pick up as the area gets more amenities (5-10 years time).

My only advice is buy a place you would live in if you couldn't rent it out. That is my only regret currently. Either than that, it's not as much doom and gloom if you do your due diligence.

Good luck in whatever you decide. Only commit if the numbers work out.

Feruk
02-02-2017, 09:09 AM
There is nowhere in Calgary that I think you can make money by buying a place and renting it out. Housing prices are just too high and rents too low.


Originally posted by Xtrema
And I don't see how you would be cash positive if you don't have 50% down.
At that point, the advantage of leverage is mostly gone. Also you didn't factor in the opportunity loss on that 50% down payment sitting as dead money.


Originally posted by Sugarphreak
IMO a nice investment would be a townhome/rowhouse in the Aspen Woods area for that price. Easy low-cost maintenance, and it should see the largest growth in price when compared to the rest of Calgary in the next couple of years IMO.
Based on what? The cost of a condo in Aspen Woods pretty much guarantees you'll never make a dollar...

timdog
02-02-2017, 09:40 AM
there is absolutely risk involved right now, as there always is. but that could be what makes it a good time. if most people are telling you to run in the other direction, that's usually a good time to do it. BUT, be prepared to go cashflow negative for a year or two, and if the market turns around, you'll be in a good place. Most people buy investment properties when times are great and the market is hot. That is the worst time to buy. find a place that's been on the market for 90+ days, make a low ball offer and do a lipstick job on it and make it really nice. there will be some tough times but in 5-10 years you'll be very happy you did it. Unless calgary becomes the next Detroit then we're all fucked.

Buster
02-02-2017, 09:52 AM
Originally posted by The BMW Guy
Here's my take on it.

I bought an investment property back in 2013. Put down 20% on it with a low interest rate.

This was during the boom times so it was very easy to get wonderful tenants (I didn't even have to show the place to my first tenant, that's how good of a candidate he was). During 2013-2014 the property actually cash flowed positive $300 a month (this is after paying condo fees, property tax, mortgage, HOA, insurance, etc.).

With the current rental market/interest rates, the property is just breaking even ($0 cash flow after paying the items mentioned previously).

If you account for the mortgage principal as a return on the 20% down, I've averaged about 15% annually over the last 4 years on the property. About 10% right now during bleak times, and as high as 20% during the good times.

I’ve been lucky to have wonderful tenants and minimal maintenance on the property (newer townhouse). The property is also near a new development, so I’m hoping its value will pick up as the area gets more amenities (5-10 years time).

My only advice is buy a place you would live in if you couldn't rent it out. That is my only regret currently. Either than that, it's not as much doom and gloom if you do your due diligence.

Good luck in whatever you decide. Only commit if the numbers work out.

I'm not sure I'd calculate return like that. To properly calculate the "return" you would need to determine the liquidation value of the house. Your debt repayment is just de-leveraging. Be careful comparing ROE to ROI directly.

But most importantly, you can't compare the return of a leveraged investment directly to, say, the return of an S&P index return without adjusting for the risk and volatility associated with the leverage.

The game is about 'risk adjusted' returns.

88CRX
02-02-2017, 10:09 AM
I just ran some really rough numbers on my townhouse rental property. I purchased 10 years ago, took over a year to built, lived in it for 5 years and have been renting it for roughly 4 years.

30 years mortgage with 10% down payment.

I figure all or most of the monthly positive cash flow has been eaten up by upkeep (painting, hot water tank replacement, etc) and income tax. It isn’t positive monthly cash flow right now (it was previous by $150-$300/month) but is earning decent mortgage equity on a monthly basis now that the mortgage had been paid down for 9 years.

With all that in mind if I could sell for what I bought it for 10 years ago (I think that’s realistic) after paying realtor fee’s my ROI would be a whopping 5%!

Same calc’s/values and hold on to it for another year (more mortgage paid down) and the ROI jumps to 5.8%. Again assuming no increase in property value.

Unless you’re property is appreciating in value the ROI is not huge!

Buster
02-02-2017, 10:26 AM
Don't forget that paying down the mortgage is not a "cash flow". If you are precisely breaking even every month, and then sell at the 10 year mark, then your "cash flow" for the purposes of a return calculation need to reflect the entire ten year project.

88CRX
02-02-2017, 10:31 AM
Originally posted by Buster
Don't forget that paying down the mortgage is not a "cash flow". If you are precisely breaking even every month, and then sell at the 10 year mark, then your "cash flow" for the purposes of a return calculation need to reflect the entire ten year project.

Yup.

And after paying income tax annually on your mortgage equity earned your monthly cash flow is negative in a slow market.

Moral of the story. Put your money elsewhere haha.

msommers
02-02-2017, 10:42 AM
If I was to do this all over again, I would have bought a townhouse in Aspen. Problem was as a single buyer at 425K, it was a lot more than I could afford as a first house and plus I never thought I'd be renting out my place.

Given how things have gone now and what I know now, a townhouse in a nicer area is what I'd stretch for. You get a younger family in there who is looking to live for 2+ years at a time and unless something major goes wrong, it's little stress. Right now dealing with negative cashflow and 6 month leases living in a different city, it definitely has stress attached. Fortunately all the tenants have been as good as I expected - I'm thankful for that.

I would never buy a rental by the University. Maybe one of those new condo units pre-build and then flip it before anyone gets keys transferred.

mzdspd
02-02-2017, 11:20 AM
Originally posted by msommers

Given how things have gone now and what I know now, a townhouse in a nicer area is what I'd stretch for. You get a younger family in there who is looking to live for 2+ years at a time and unless something major goes wrong, it's little stress. Right now dealing with negative cashflow and 6 month leases living in a different city, it definitely has stress attached. Fortunately all the tenants have been as good as I expected - I'm thankful for that..

This sounds like a good idea but even then it doesn't always work.. I owned a new townhome in a nice area (Edmonton area). My neighbor bought the whole building (4 units) beside me and was renting them all out. When times were good he was getting 2000 -2200 a month for a townhouse worth 325k but he was getting a new tenant every year. People wouldn't stay longer then that. After the first year, he complained to me that people were causing damage. Well then it slowed down and he was getting shittier and shitier tenants for around 1500 a month. Last time I had talked to him he was complaining because people were trashing the places and leaving partway thru their leases.

R-Audi
02-02-2017, 11:39 AM
Ive had a rental condo in the beltline for ~10 years now. While I havent had any issues with tenants, there has only been 2 years where I have had positive cash flow and the condo has generally been a pain in my ass. (Post flood when rents were high, condo fees are fairly high, a few assesments) I was able to take out 75k when I renewed the mortgage a few years back, but thats been my only positive experience. Id be thrilled to walk away today breaking even for the current mortgage amount.

If anything, Id look towards something without condo/HO fees.. ie. house.

The BMW Guy
02-02-2017, 02:19 PM
Originally posted by Buster


I'm not sure I'd calculate return like that. To properly calculate the "return" you would need to determine the liquidation value of the house. Your debt repayment is just de-leveraging. Be careful comparing ROE to ROI directly.

But most importantly, you can't compare the return of a leveraged investment directly to, say, the return of an S&P index return without adjusting for the risk and volatility associated with the leverage.

The game is about 'risk adjusted' returns.

Can you elaborate more on what you mean when comparing the return of a leveraged investment to returns of the S&P? How should I adjust for the leverage?

Buster
02-02-2017, 03:08 PM
Originally posted by The BMW Guy


Can you elaborate more on what you mean when comparing the return of a leveraged investment to returns of the S&P? How should I adjust for the leverage?

Well, if you borrowed to buy the house at 4 to 1 (ie 20% down), then calculate your actual cash return.

Then borrow money 4 to 1, and invest in an S&P index, then compare your return.

I haven't done the numbers...but my point is that when calculating the return, you can't ignore the implications of the fact that you are leveraged and that that creates risk. When people see a good ROI on a home, they think it's a feature of RE real estate that "creates" that return. Really what they are seeing is the increased return as a result of leverage. But if you want to take on more risk (often in the form of leverage), the I think there are more useful tools to do so. You can also avoid all the insidious risk and sucking sounds created by a residential RE investment: liquidity risk, massive transaction costs, long exits horizons, labour intensive, capital tax implication...I could go on.

As I said before, I find i pretty depressing that the one market where there is relatively easy access to the Leverage Bomb for the average Joe, is also the one where we all shelter our families. Throw in some recency bias, and yuck.

Tenkara Way
02-02-2017, 05:46 PM
Don't listen to these losers, smart money, Vu techniques and a time machine are the keys to your empire.

iQNdi-fRExc

oster
02-03-2017, 02:09 PM
Thanks all for the input.

Where I'm seeing the benefit is the appreciation in property value not the rental income, however, if I only decide to stay in it short term I don't want to be losing money every month renting. Tough call. Looking at the time, fees, and stress involved :thumbsdow

Like some said, house may be the better option, it'll just be at the top end of my budget.

Tips on investible communities w/ starter homes? Maybe a shitty inner city place that could be reno'd?

ercchry
02-03-2017, 02:53 PM
Originally posted by oster
Thanks all for the input.

Where I'm seeing the benefit is the appreciation in property value not the rental income, however, if I only decide to stay in it short term I don't want to be losing money every month renting. Tough call. Looking at the time, fees, and stress involved :thumbsdow

Like some said, house may be the better option, it'll just be at the top end of my budget.

Tips on investible communities w/ starter homes? Maybe a shitty inner city place that could be reno'd?

For the south I'd look at bridalwood, shawnessy, cedarbrie, queensland, or maybe if you're lucky woodbine/woodlands

You'd get a smaller home on a decent sized lot in those areas... with reno potential for increased value. You can also get extra money added to your mortgage for "home improvements" so if you find something on the lower end that needs love keep that in mind

mazdavirgin
02-03-2017, 04:03 PM
Originally posted by oster
Where I'm seeing the benefit is the appreciation in property value not the rental income, however, if I only decide to stay in it short term I don't want to be losing money every month renting. Tough call. Looking at the time, fees, and stress involved

You're counting on appreciation in property value in the current market and economy?

roopi
02-03-2017, 04:08 PM
Originally posted by mazdavirgin


You're counting on appreciation in property value in the current market and economy?

Sure why not? Real estate values do increase over time.

If you are looking for appreciation and under 400k I would look in the Tuxedo area for something that is still rentable. Area is close to downtown and is getting infills. Hold onto it for a few years and see what happens.

https://findcalgary.files.wordpress.com/2010/07/calgaryhistorical.gif

jwslam
02-03-2017, 04:14 PM
C4095286

mazdavirgin
02-03-2017, 04:14 PM
Originally posted by roopi


Sure why not? Real estate values do increase over time.

If you are looking for appreciation and under 400k I would look in the Tuxedo area for something that is still rentable. Area is close to downtown and is getting infills. Hold onto it for a few years and see what happens.

https://findcalgary.files.wordpress.com/2010/07/calgaryhistorical.gif

1980-1990 almost ten years of stagnation/no appreciation, inflation adjust those values and it's a loss until almost 1999. Do you think that will never happen again seeing that graph? Or do you just want to pick the recent history which by any means seems abnormal.

Buster
02-03-2017, 04:18 PM
As an asset class, RE generally just follows inflation, over a long enough timeline.

roopi
02-03-2017, 04:56 PM
Originally posted by mazdavirgin


1980-1990 almost ten years of stagnation/no appreciation, inflation adjust those values and it's a loss until almost 1999. Do you think that will never happen again seeing that graph? Or do you just want to pick the recent history which by any means seems abnormal.



Originally posted by Buster
As an asset class, RE generally just follows inflation, over a long enough timeline.

I'm not going to argue/derail the thread in relation to inflation. Just wanted to state that prices will appreciate. The reason for those increases is due to many different factors (which you guys have mentioned).

ercchry
02-03-2017, 05:20 PM
Originally posted by mazdavirgin


1980-1990 almost ten years of stagnation/no appreciation, inflation adjust those values and it's a loss until almost 1999. Do you think that will never happen again seeing that graph? Or do you just want to pick the recent history which by any means seems abnormal.

Rule changes, cmhc, low interest rates, etc... plus the economical aspects makes it hard to compare the current real estate environment to the past... just look at the major events of the 80s and the effect on prices vs the 08 and 15 versions of those events and the changes

zhao
02-04-2017, 04:28 PM
OP here is my personal take (obviously there are landlords renting out every type of bulding out there and doing all kinds of other things for investment with them, but this is my observations):

I would never consider a 1 bedroom condo. 2 bedrooms for an investment or dont bother. 1 bedroom with a den that is basically a bedroom without a window is worth considering though.

downtown condos: are a terrible investment IMO for rentals, especially new ones if you're looking to rent. The old cheap ones that catch your eye likely have huge issues iwth the reserve fund and management, and anything newer costs a bloody fortune. You're going to buy a condo for twice the price you can get one in the burbs that will rent for a bit more. You may think, oh ya, but in 20 years it will have appreciated.... well, I can tell you that is likely not going to happen any more than any other condo. There is no shortage of old condos downtown that are worth the square root of jack shit compared to what builders are trying to scam people into paying for new ones. The only way I'd invest in one of these was to flip as a new construction, but I haven't seen one yet that the dollars made sense on. I have yet to find one that caught my eye to use as a rental

Concrete condos in the burbs: Don't make any sense to me either; too expensive new, so the return isn't as good on every dollar you invest... but theoretically they should attract better renters and have less headaches... (but they cost the same as a townhouse...). these things are often dubbed 'luxury' condos too, whatever the hell that means, and have crazy condo fees that dont benefit you at all as a landlord. again, like downtown condos I haven't seen one that made sense to flip as a new construction either.

Stick Condos in the burbs: are technically terrible investments IMO too. They are great to flip when new (done that, made good money), but in the long term it is all downhill for a condo like this. Holding it for appreciation is not the goal here IMO. The goal is to have someone else pay off your mortgage over 25-30 years with lower risk. I said lower risk only because you do not have to deal with a yard, or maintenance on the outside of the building, or worry about anything getting trashed other than drywall, floors, and appliances. Lower risk also because they are cheaper to carry if it's not renting and easy enough to rent out.

IMO they are the first property in a market likely to be cashflow positive.

townhouses/duplexes: the perk here is hopefully you do not have to deal with some asshole condo board telling you what to do or changing the rules for renting on you. Condo fees are often dirt cheap also. I have a townhouse and i forget the details but the condo fees are just under $100 a month I think. The downside to me is you still do not 'own' your chunk of land and they will not appreciate very much. You ever seen a 30 year old townhouse that you wanted to live in? lol, I haven't.

detached garage homes: around here in edmonton you can get into one of these new for the price of a duplex, so IMO they make great rentals since they're sitting on their own land with no other asshole attached to your property, it'll appreciate better. But, your average renter doesn't care about maintaining anything, so you need to spend more time and effort. you're now responsible for the entire property by yourself too, not being lumped together with others.

attached garage homes: depends on the area, but anything new seems like a bad idea as a rental. Too expensive, too new, too much risk. You're rolling the dice and it'll likely land on your renter will put 10 years worth of wear (from not giving a shit or being a complete moron who was used to living in a mud hut, or their parents house) on your property in the span of a year. You're likely to get families living or more well off people living in these however, which usually is decent.

split upstair/downstair homes: By far the biggest headache. Also by far the biggest headache for landlord/tenant dispute centers. Non stop bitching about the dude upstairs, or downstairs, or other such bullshit. Cashflow postitive and should appreciate acceptably.


Personally I own a stick built condo and a townhouse as rentals right now, but my next one I add will probably be a detached garage house. Never say never, but I will likely never own a rental property that is a condo downtown, a concrete condo, or a duplex. Ideally I'd like to own a bunch of houses because dealing with renters can become a full time job.

ALso, I have a property management firm managing my townhouse (its in BC, which is an awesome place to be a landlord right now), and my wife and me manage our local condo. If you find a good property management firm, they're awesome, but I'm sure most of those big firms out there are complete bullshit.



Originally posted by Buster
As an asset class, RE generally just follows inflation, over a long enough timeline.

Past performance is never an indication of future return. Detroit sure didn't follow national inflation rates, nor did vancouver.... or sanfransisco.

Buster
02-04-2017, 05:07 PM
Originally posted by zhao



Past performance is never an indication of future return. Detroit sure didn't follow national inflation rates, nor did vancouver.... or sanfransisco.

Indeed. I meant "historically" but should have said so.

Xtrema
02-05-2017, 12:38 PM
Originally posted by mazdavirgin


1980-1990 almost ten years of stagnation/no appreciation, inflation adjust those values and it's a loss until almost 1999. Do you think that will never happen again seeing that graph? Or do you just want to pick the recent history which by any means seems abnormal.

The 03-07 run is basically great natural gas market combined with historically low interest rate thanks to 9/11, Iraq invasion.

Ever since then, even with the $100+ oil run of 11-14 didn't repeat that kind of performance.

I think it'll take Russia invasion and take back all the countries east of Germany to repeat the performance of 03-07.

Yeah, investment property is all about inflation protection, never great returns. But it will never fold up like Nortel either.

holden
02-05-2017, 12:50 PM
Originally posted by Xtrema


The 03-07 run is basically great natural gas market combined with historically low interest rate thanks to 9/11, Iraq invasion.

Ever since then, even with the $100+ oil run of 11-14 didn't repeat that kind of performance.

I think it'll take Russia invasion and take back all the countries east of Germany to repeat the performance of 03-07.

Yeah, investment property is all about inflation protection, never great returns. But it will never fold up like Nortel either.

Also lots of the resource sector's growth in the 2000's was China which had unprecedented growth. It's now transitioning from manufacturing to a service based economy like other developed economies. Not sure if India can take up the slack.

Xtrema
02-05-2017, 01:29 PM
Originally posted by holden
Not sure if India can take up the slack.

No, I don't think so. They had all the making to turn into another China but somehow they can't perform the same accelerated growth.

I think it is all about stable government.

jwslam
02-06-2017, 09:07 AM
Originally posted by holden
Not sure if India can take up the slack.


Originally posted by Xtrema
No, I don't think so. They had all the making to turn into another China but somehow they can't perform the same accelerated growth.
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