Archive for June, 2014

Monster May for housing sales doesn’t mean the market won’t slow

Monday, June 16th, 2014

Garry Marr
Other

May was a phenomenal month for existing homes sales across the country but the jump in activity might say more about the harsh winter than the state of the market.

The Canadian Real Estate Association said Monday that sales in May jumped 5.9% from April which was the largest monthly increase in more than four years. Sales jumped in 80% of the markets surveyed by the group.

“Over the past 25 years, that widespread a monthly sales increase has been recorded only a handful of times,” said Beth Crosbie, president of CREA.

The group said there was a “delayed start” to the spring buying season as people deferred putting their homes on the market until the end of a harsh winter. With summer just about here, the group doesn’t think the pace of the last month can be maintained.

That’s a view held by many in the market.

“I think you are seeing the rougher winter held back supply and then it came on stream. It’s starting to balance out a bit,” said Martin Reid, president of Home Capital. “We think the price appreciation we saw in cities like Toronto will normalize.”

The average price of a home sold across the country in May reached $416,584, a 7.1% increase from a year earlier. Remove Greater Toronto and Greater Vancouver from the equation and the average price was just $336,373 last month with prices up 5.3% from a year ago.

CREA isn’t predicting any sort of crash and says sales should reach 463,400 this year, buoyed by continued low interest rates. At that level, sales would be up 1.2% from a year ago. By 2015, it expects another 0.9% increase in sales.

Prices also have some room to grow, says the group which is predicting the average home will sell for $404,300 this year, a 5.7% annual increase. Prices are forecast to only rise 0.7% next year.

Mr. Reid thinks price increases will be flat to 5% this year depending on the market with Toronto and Calgary being the exceptions. He warns people might need to get used to a new reality in housing.

“Price appreciation will be a lot slower than what we’ve seen over the last 10 years over the next few years though we see sales activity as reasonably good,” he said.

Robert Kavcic, an economist with Bank of Montreal, said while the housing market looks “balanced and sturdy overall,” once you check a little more closely you see individual markets like Toronto and Calgary are performing better.

“One reason policymakers might be a bit hesitant to act again soon is that strong price gains are confined to a few select markets, or even sub-markets, while a wide swath of the country (at least geographically) is seeing downright dreary conditions,” the economist said Monday.

Robert Hogue, senior economist with Royal Bank of Canada, cautioned that the huge jump in sales activity in May probably won’t hold up for the rest of the year.

“For the most part, [May sales] represent a temporary burst that will not be sustained much longer because there is minimal pent up demand to satisfy,” he said. “We expect the Canadian housing market to enter a moderation phase later this year once long-term interest rates start to raise.”

© 2014 National Post, a division of Postmedia Network Inc.

CMHC to return to lower-risk roots

Monday, June 16th, 2014

Boyd Erman and Tara Perkins
Other

The head of Canada Mortgage and Housing Corp. is shifting the priority of the mortgage insurer to helping Canadians buy homes they need, not the bigger, pricier homes they might want.

Chief executive officer Evan Siddall said in an exclusive interview that his first six months on the job have been focused on building an organization that will be more flexible and transparent, one that will do more to emphasize its social housing role and less to subsidize the banks. And one that will only help Canadians purchase homes they need. That will result in fewer and smaller new insurance policies, and will stem the risk to Canadian taxpayers of losses at CMHC should the housing market slump.

“We help Canadians meet their housing needs, not exceed them,” Mr. Siddall told The Globe and Mail’s editorial board, as he outlined the mandate that will guide his time at the helm of the mortgage insurer.

It’s a return in direction back CMHC’s roots, after a period in which it was accused of stoking the housing market. CMHC is the country’s dominant seller of mortgage insurance, which essentially reimburses lenders if a borrower defaults on a mortgage. The insurance is mandatory any time a federally-regulated lender sells a mortgage to someone who doesn’t have a down payment of at least 20 per cent. While the banks are technically responsible for paying the insurance fees, in practice they pass them on to home buyers.

Mortgage insurance reduces the risks to the banks, encouraging them to lend more, and making it easier and cheaper to obtain mortgages.

The Crown corporation was created in 1946 to help returning war veterans buy homes, but it has grown to become the size of one of Canada’s biggest banks. Over the past 10 years CMHC has at times dabbled in backing 40-year mortgages with no down payment, mortgages on second homes, mortgages on homes worth seven figures, and loans for condominium construction. But it has been recently scaling back amid fears of taxpayer exposure to the housing market

CMHC has an explicit government guarantee, leaving taxpayers on the hook if things go sour. Mr. Siddall said he does not believe the housing market is in dangerous territory, but even so, managing risk for taxpayers is a “sacred obligation.”

In recent months, the insurer has rolled out a string of changes that have underlined the shift in emphasis, including eliminating insurance for second homes and all individual insurance on homes over $1-million.

“The first thing we did as an executive group is we spent a lot of time thinking about our purpose,” said Mr. Siddall, a former investment banker at Bank of Montreal and Goldman Sachs & Co., who also worked as a special adviser to former Bank of Canada governor Mark Carney.

Mr. Siddall is continuing the direction that was set for the organization by former finance minister Jim Flaherty, who started pulling the government’s backing for homes priced over $1-million two years ago. But he is also putting his own stamp on CMHC at a time when current Finance Minister Joe Oliver has said he plans to take a less active role in the housing sector.

“We manage the government’s exposure to the tail risk of a housing crisis,” Mr. Siddall said. “And we do that with taxpayers’ money. That’s a sacred obligation and a core obligation of what we do.”

He added that the Crown corporation is choosing to cut its own risks. “There has been speculation that these changes have been imposed on us by Finance. That’s not true,” he said. “In fact, my first meeting with the Minister of Finance won’t be until later this week.”

That’s not to say there hasn’t been interaction with government, which recently placed the deputy minister of finance on CMHC’s board. Ottawa has been working to stem the growth of CMHC because it has racked up massive taxpayer exposure to the housing market, and some of its products have helped to fuel house prices.

Mr. Siddall said the Canadian market is “modestly overvalued” but he believes that there will be a soft landing, meaning a gradual petering out as opposed to any crash in prices.

“If prices continue to grow, all things being equal, we would be worried,” he said. “But we are not concerned right now about the level of prices or the level of activity in the housing market.”

Sales of existing homes in Canada sprang to life in May, rising 5.9 per cent from April, according to the Canadian Real Estate Association (CREA). That’s the highest month-to-month increase in almost four years, and was much higher than economists expected.

“The housing market remains remarkably resilient,” Bank of Montreal economist Benjamin Reitzes said in a research note. “As long as rates remain at rock-bottom levels, housing isn’t like to weaken much, if at all.”

While sales slumped through the cold winter months, price growth has continued to be relatively strong. CREA said Monday that it now expects the national average home price will rise 5.7 per cent this year to $404,300. In March it was forecasting a 3.8-per-cent increase to $397,000.

While the current prices don’t concern Mr. Siddall, he said the organization is worried about consumer debt levels.

“We are concerned about the elevated level of Canadian consumer indebtedness,” he said, adding that it removes consumers’ ability to withstand an unforeseen event.

During the meeting with The Globe, he emphasized the importance of CMHC’s basic role in the market, while acknowledging that more should be done to shift risk back to the banks and the private sector. His comments come amid criticism from groups such as the Organization for Economic Co-operation and Development (OECD), which argued in a report about the state of Canada’s economy last week that the government should consider privatizing CMHC’s insurance activities.

“People like the OECD, when they wonder about our model, kind of miss the memo about the role CMHC can play,” Mr. Siddall said. “Now, we [do] have a responsibility to attend to how large that should be.”

The OECD also called for changes to the system to ensure lenders take on more risk for home loans. It noted that in other countries with mortgage insurance, the insurance tends to cover 10 to 30 per cent of the losses, rather than 100 per cent, and suggested imposing a deductible.

The concept of a deductible is a “pretty good idea,” Mr. Siddall said, although it would take some time to be put into practice in Canada.

Finance Minister Oliver said Monday that the idea of having CMHC insure only a portion of mortgages, rather than the entire loan, is one that could be looked at. Mr. Oliver said he would like to see the private sector mortgage insurers take a larger share of the market and that when it comes to taking further steps to reduce risk, “the specific decisions taken by CMHC will be their decision.”

When it comes to CMHC’s large securitization arm, which essentially packages up mortgages and sells them as bonds or helps banks sell them, Mr. Siddall said he’s worried that it’s a low-cost form of wholesale funding for the institutions and “that means we’re subsidizing banks. … And that is something that over time we should address.”

It’s too soon to say how, he added. “We’ve got to make sure we do it in a way that’s supportive of markets, that we do it in consultation with banks so that we don’t disrupt their businesses,” he said.

© Copyright 2014 The Globe and Mail Inc.

REBGV May 2014 Stats

Wednesday, June 11th, 2014

Other

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False Creek waterfront park remains in limbo

Wednesday, June 11th, 2014

Council approves two towers for Concord development on Expo Boulevard, but no date given on when nine-acre park will be built

Mike Howell
Van. Courier

Vancouver’s head planner was unable to provide city council this week with a clear timeline as to when a developer will build a long-promised nine-acre park on the False Creek waterfront.

But Brian Jackson told council that Concord Pacific cannot be accused of delaying construction of the park planned more than 20 years ago for a strip of asphalt located near the Telus World of Science.

“I don’t think that there has been any foot-dragging with respect to the delivery of that park,” said Jackson during two nights of public hearings that concluded Wednesday night with council approving a condominium project proposed by Concord for 998 Expo Boulevard.

Council’s approval guarantees the city will get a site at 58 West Hastings for future social housing and a paddling centre in False Creek.

The park was not part of the community amenity package offered by Concord in the Expo Boulevard development, although False Creek residents argued it should be.

John Murray of the False Creek Residents’ Association urged council Tuesday night to give the public a firm commitment on when the park will be built.

In an exchange with Green Party Coun. Adriane Carr, Murray said the residents’ association would support Concord’s two-tower project on Expo Boulevard, if a timeline for the park were provided.

“The goal posts keep changing,” said Murray, who is part of campaign where hundreds of False Creek residents turn on green lights at night to symbolize the need for the park. “We do realize that there are complications here but we need to have some sort of commitment.”

Carr made an unsuccessful attempt to get council to set a timeline for the park to be built by 2018, a date Jackson suggested if a complex set of factors falls into place including the demolition of the Georgia and Dunsmuir viaducts.

The nine-acre park site is a small piece of the 204 acres of land Concord Pacific bought from the provincial government in 1988.

Concord paid $320 million for the former Expo 86 lands that run from the Granville Bridge to the Telus World of Science. Concord has developed most of the lands, constructing condominiums and parks, as well as marinas on the water lots.

Jackson said the nine-acre park site has remained idle since the purchase because Concord planned to first build out the other lands before constructing the park.

Since then, the construction of the park has been further complicated by an ongoing study to determine whether the Georgia and Dunsmuir viaducts will be demolished, which could free up more land possibly for park space.

That decision isn’t expected until next summer.

Furthermore, the residents’ association filed a petition in B.C. Supreme Court in May in an effort to stop the city from continuing to issue Concord a temporary permit to operate a sales centre on the park site.

The residents’ association says Concord is operating on land designated for green space. The developer, they say, has also reaped significant profits from renting the property to various organizations over the years.

The Quebec government, for example, paid Concord $1.3 million to set up the Maison du Quebec on the property during the 2010 Winter Games. Cirque du Soleil is currently using the property for its Totem production, which runs until July 6.

Jackson acknowledged the residents’ legal challenge in an exchange with Vision Vancouver Coun. Geoff Meggs, who asked when the park could be expected to be built.

“To be honest councillor, we’re now constrained by the fact that we have a lawsuit against us,” Jackson replied. “That will affect our ability to negotiate on the park. It will constrain our ability. We will be spending a lot of time in preparing for a court case.”

The park was part of the discussion at the hearings after Concord applied to get a rezoning application approved to build 28-storey and 30-storey residential towers at 998 Expo Boulevard.

The staff report for the development pointed out the park cannot be developed until Concord decides to develop another parcel of land adjacent to Rogers Arena.

That land, known as Area 6 in planning documents, is filled with contaminated soil left over from False Creek’s industrial past. The plan calls for the developer to dump the soil on the park site, where it will be remediated. It’s a requirement of the provincial government, which will pay for the costs of soil remediation.

Concord said in a statement on its website that rezoning of the land could happen within three years. The statement cited the city’s ongoing study on the viaducts and planning delays during the 2010 Winter Olympics as reasons for not proceeding with a rezoning application.

“Although we have been delayed and impacted, we understand the 2010 Games and the viaduct studies were and are important civic initiatives,” the statement said. “We are as anxious as our neighbours to see our waterfront developments and the park completed as soon as possible.”

More than 60 speakers at the hearing told council they supported the Expo Boulevard project, which includes the developer building a $4.2 million paddling centre outside the Creekside Community Centre. The majority of speakers were from the dragon boat community, including coaches and senior staff of organizations promoting the sport.

Note: Meggs decided to participate in Tuesday’s hearing, despite the residents’ association requesting he recuse himself after posting a write-up on his blog about the hearing and linking to Concord’s website.

The Courier obtained a copy of Meggs’ post but nowhere in his write-up did he say whether he would vote for or against the project on Expo Boulevard.

“I took [the blog post] down because of the public concern,” Meggs told council before the hearing began. “I certainly regret the distraction that it caused but I’ve reflected on it, I’ve discussed it with lawyers who have given me legal counsel and I’m very comfortable I acted appropriately under the circumstances.”

At the close of the hearing, Mayor Gregor Robertson reminded councillors “not to get into conversations on this subject while we’re in public hearing mode.”

With a decision made Wednesday night, Meggs has since re-posted his entry on the Concord rezoning.

© Vancouver Courier

Metro Vancouver housing starts rise in May

Monday, June 9th, 2014

Emma Crawford Hampel
Other

Total housing starts were trending at 19,001 units in May in the Vancouver Census Metropolitan Area, according to Canada Mortgage and Housing Corporation data released June 9.

This figure, which represents a six-month moving average of seasonally adjusted annual rates, is an increase of 1.8% compared with 18,670 units in April.

“Increased apartment construction in May contributed to a higher housing starts trend this month compared with April’s starts,” said Robyn Adamache, CMHC senior market analyst for Vancouver

“The majority of May apartment starts were concentrated in the cities of Burnaby, Coquitlam and Richmond.”

Across British Columbia, housing starts were up 0.6% to 26,179 in May over the same period.

“The stable trend in new home construction is in line with economic fundamentals which include: balanced resale market conditions, modest employment growth and low mortgage interest rates,” said CMHC’s B.C. regional economist Carol Frketich.

“May trend levels for multiple-family and single-detached home starts were relatively unchanged compared with April data.”

The CMHC said it uses a moving-average rate instead of a monthly rate as this gives a more complete picture of the market. Looking at monthly data on its own, said the CMHC, can be misleading as markets can vary considerably month-to-month.

Copyright © Business In Vancouver

CMHC drops mortgage insurance for condo developers

Friday, June 6th, 2014

Tara Perkins
Other

Canada Mortgage and Housing Corp. says it will no longer offer mortgage insurance to developers to finance the construction of new condo buildings.

The Crown corporation has not actually provided any of the controversial insurance since 2011, but is now officially removing the product. It was controversial because the insurance made it easier for condo developers to finance new projects, but the Bank of Canada and economists have been warning that there’s a risk too many new condos are being built in cities like Toronto.

CMHC said that, as of the end of March, it still had $378-million worth of mortgage insurance for the financing of condo construction on its books, from when it was still offering the product.

The changes apply only to mortgage insurance on loans to developers, not to individual condo buyers.

The change is part of a review that the Crown corporation has been doing to ensure that it’s not taking on too much risk. The federal government has been seeking to rein in the amount of exposure that CMHC has been racking up to Canada’s housing market. Taxpayers backstop, or guarantee, CMHC’s business.

CMHC also said that it is tightening up its standards for homeowners who have a down-payment of more than 20 per cent.

Mortgage insurance is only mandatory when a federally-regulated lender sells a mortgage to someone who has a down-payment of less than 20 per cent. But sometimes banks will also buy insurance to cover individual low loan-to-value mortgages, those that do not have to be insured. From now on, in those instances, the mortgage will still have to meet certain requirements that high loan-to-value mortgages must already meet to be insured: the house must have been bought for $1-million or less, the mortgage must have an amortization of 25 years or less, and the borrower must meet certain debt servicing tests.

Neither of CMHC’s private-sector competitors, Genworth MI Canada and Canada Guaranty, currently sell mortgage insurance for condo construction financing.

Mortgage insurance is designed to pay back ‎the lender, or bank, if the borrower defaults on their loan or mortgage.

© Copyright 2014 The Globe and Mail Inc.

Bank of Canada maintains overnight rate target at 1 per cent

Wednesday, June 4th, 2014

Other

OTTAWA, June 4, 2014 /CNW/ – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Total CPI inflation has moved up to around the 2 per cent target, sooner than anticipated in the Bank’s April Monetary Policy Report (MPR), largely due to the temporary effects of higher energy prices and exchange rate pass-through. Core inflation remains significantly below 2 per cent although it has drifted up slightly, partly owing to past exchange rate movements.

Global economic growth in the first quarter of 2014 was weaker than anticipated in the MPR and recent developments give slightly greater weight to downside risks. The U.S. economy is rebounding after a pause in the first quarter, but there could be slightly less underlying momentum than previously expected. Globally, long-term bond yields have continued their decline, reflecting in part growing market anticipation that interest rates will remain low over the long term. This, along with buoyant stock markets and tight credit spreads, indicates that financial conditions remain very stimulative.

The Canadian economy grew at a modest rate in the first quarter, held back by severe weather and supply constraints. The ingredients for a pickup in exports remain in place, including the lower Canadian dollar and an anticipated strengthening of foreign demand. Improved corporate profits, especially in exchange rate-sensitive sectors, should also support higher business investment in the coming quarters. There are continued signs of a soft landing in the housing market and a constructive evolution of household imbalances. We still expect excess supply to be absorbed gradually as the fundamental drivers of growth and inflation in Canada strengthen.

Weighing recent higher inflation readings against slightly increased risks to economic growth leaves the downside risks to the inflation outlook as important as before. At the same time, the risks associated with household imbalances remain elevated. The Bank judges that the balance of risks remains within the zone for which the current stance of monetary policy is appropriate and therefore has decided to maintain the target for the overnight rate at 1 per cent. The timing and direction of the next change to the policy rate will depend on how new information influences the balance of risks.

Information note:

The next scheduled date for announcing the overnight rate target is 16 July 2014. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR at the same time.

SOURCE Bank of Canada

Foreign buyers looking to sell?

Wednesday, June 4th, 2014

Vernon Clement Jones
Other

Fears that federal government’s move to pull the plug on an incentive program attracting wealthy foreign property buyers to Vancouver and Toronto are indeed grounded, says one Chinese market analyst. 

Ian Young, a past editor of South China Morning Post, points to March 2014 data suggesting that within weeks of Ottawa’s cancellation of the Immigrant Investor Program (IIP), average prices for detached homes on the Lower Mainland dipped by 11 per cent from February 2014.

He and others are chalking the decline up to the loss of a program that helped wealthy Chinese nationals gain a foothold into Canada by gaining a foothold onto the Canadian property ladder. 

Now, he says, “the fear among Chinese Realtors is that people will just liquidate their assets.

“Last year one of the top real estate agents in the city, who is Chinese, told me when this program ends she won’t be selling homes in Vancouver anymore.”

That analysis hasn’t necessarily been met with fear on the part of Canadian buyers, many of who blame the IIP for the meteoric rise in Vancouver home prices in key neighbourhoods over the last five years. 

In fact, many have seen the federal government move as answering the prayers of many B.C. residents and their real estate professionals with its move to put the kibosh on a controversial program tying immigration to investment. 

Originally launched in 1986, the Immigrant Investor Program offered visas to foreign investors with a net worth of at least $1.6 million who were willing to lend $800,000 to the Canadian government for investment across Canada for a term of five years. 

However, the program was temporarily halted in 2012. This was due to a huge backlog of applications from wealthy investors from mainland China hoping to immigrate to B.C. and actively invest in its real estate. Now, the federal government announced it will scrap the incentive outright, eliminating 59,000 applications backlogged worldwide. 

Losing the foreign investors could potentially be damaging to B.C.’s real estate markets, particularly Vancouver, which is often reliant on interest from foreign buyers. This, in turn, could also be damaging to Vancouver’s economy.

“When you suddenly stave off the intake of literally hundreds of millionaires in the Vancouver property market, prices can only go one way and that’s down,” immigration lawyer Richard Kurland told CBC News. 

But the move is just as likely to help the market as hurt it, say Canadian property investors and homebuyers long concerned that wealthy foreign buyers have inadvertently driven up prices, particularly on B.C.’s Lower Mainland and in Toronto.

Copyright ©2009 KMI Pty Ltd

Do the math: Vancouver house prices will reach $7 million

Wednesday, June 4th, 2014

Frank O’Brien
Other

The average detached house price on the West Side of Vancouver will reach more than $7 million within ten years, suggests Altus Group, one of Canada’s premier appraisal and valuation firms.

“If [the current] trend continues, in the year 2024 the average price for older [detached housing] stock could be greater than $2 million on the Eastside and $7 million on the Westside of Vancouver. We are not saying this will happen, we are simply applying the math from the past decade and extrapolating forward to the next decade,” said Pedro Tavares, Altus Group’s director of research, valuation and advisory.

An Altus study released this week looking at Vancouver house prices notes that 10 years ago the average older detached house on the Eastside sold for $416,674. Today the average price is $942,555.

In 2004, the average Westside older detached house sold for $835,101.

This March the average price was $2.48 million.

New house prices have seen a similar price increases, rising from $576,900 on the Eastside to $1.28 million 10 years later; and, on the Westside, rising from $1.14 million in 2004 to $3.41 million today, Atlus reports.

Copyright © Business In Vancouver

10 tips for first time real estate investors

Tuesday, June 3rd, 2014

If you plan to five into real estate as an investment do some research first.

Mark Weisleder
Other

Many people consider investing in real estate as a way to build a nest egg and have tenants help you pay the mortgage. There are pros and cons to taking that leap, but if you do, here are 10 things to know.

1.Visit with a mortgage broker or your bank to determine how much money you can afford to borrow responsibly for your investment.

2.Look for properties that generate a positive cash flow. What this means is that the rent that you receive from tenants should be enough to pay your mortgage payment, property taxes, utilities and insurance bills. Budget an additional ten percent on your overall payments to pay for minor repairs that will invariably arise. Currently this is very difficult to find in the Toronto area. Do not be afraid to expand your search to smaller communities, where you will be able to find more properties that match your search criteria.

3.Use an experienced local real estate agent who also invests in real estate themselves. Investors learn about the pitfalls only through first-hand experience, both good and bad, and you want that experience working for you as well.

4.Have any property inspected by a professional home inspector. In addition, find a contractor who you can trust to give you the right advice for any minor repairs or renovations that may be required, especially for older properties, in order to add the most value to your investment.

5.Consult with your accountant and lawyer as to how you will take ownership of the property. There are some benefits in taking title in the name of a limited company, in order to protect yourself against personal liability should someone get hurt on the property and for other tax planning purposes. However, on the other hand, you will also have to pay about $1,000 in incorporation fees and have to file a separate tax return each year for your company.

6.Keep proper records of income and expenses for your investment property. Do not mingle these with your personal bank account as it will become difficult to properly trace this when you have to file a tax return at the end of the year, regardless whether you own the investment in your personal name or in a company name.

7.If you are buying with a partner, make sure you have a proper partnership or joint venture agreement to protect both of you should things not work out as planned. In particular, provisions should be made if one of the partners wants to sell and the other one doesn’t, one partner is not paying their share of expenses or what happens if one of the partners dies.

8.Hire an experienced property manager to assist you in finding suitable tenants and dealing with any ongoing maintenance, repairs or other complaints by tenants. You do not wish to be woken up in the middle of the night to handle emergency repairs. Budget an additional $100 per month for this service.

9.Be careful not to buy and sell properties quickly. The Canada Revenue Agency may view this activity as business income. This means that you will have to pay tax on any profit you make on your investment. It is preferable to buy properties for the long term, rent them out and use your positive cash flow to reduce the amount of your mortgage owing, building equity in your property. If you then sell years later for a profit, it will likely be classified as a capital gain and thus one half of your gain will be tax free.

10.Don’t be afraid to walk away if the deal does not work for you, no matter how much time you may have invested in the property.

© Copyright Toronto Star Newspapers Ltd. 1996-2014