Real Estate Property Investment Series – Focus Canada 2007

By Rhiannon Williamson

Canada has something of an evergreen appeal which means that not only does it welcome many new and affluent citizens to its shores annually as part of its active immigration policy, these new Canadian citizens provide fresh inward flow of demand and affordability to the Canadian real estate marketplace.

If you add to this the fact that more Europeans and Americans are seeking to either move to live in Canada for part of the year or holiday there for extended periods of time throughout the year and you have quite a new and active market seeking long term rental accommodation and even resale property units as well.

On top of this active flow of demand you have local demand which is strong particularly away from some of the eastern provinces where property prices have risen a little too high a little too fast of late, and overall there is a great deal of local affordability and demand underpinning a solid and positive property market.

Having said all that, not all in the Canadian real estate garden is rosy as we look forward to 2007…while an investor who does their due diligence carefully and astutely can reap dividends from commercial and residential real estate in Canada in 2007, there are certain economic facts that could negatively impact the real estate marketplace in Canada in 2007… this report covers both angles.

On the one (negative) hand – while Canada’s property market has not been shaken quite so significantly as other established nation’s markets it has suffered a general slowdown of both market and construction activity. This is because the question of ‘affordability’ has suddenly had to enter the marketplace…questions have been raised relating to whether average property prices have hit a ceiling beyond which home buyers cannot afford to enter the market.

On the other (negative) hand – the Organisation for Economic Cooperation and Development has reported that in 2007 Canada’s GDP growth rate will under perform previous expectations of it. GDP growth was around 2.8% in 2006 and this is predicted to drop to 2.7% in 2007 before bouncing back firmly in 2008 – in addition to this, unfortunately consumer price inflation is set to follow a similar pattern and core inflationary levels could rise from 1.9% to 2.1% in 2007. These statistics suggest that the property buying public’s activity could be depressed a little in 2007.

But it’s not all bad news! Far from it in fact…

The Canadian Real Estate Association is working with the government to change the way smaller property investors in Canada are taxed on their capital gains. A small investor is one with fewer than five employees and this type of investor is called a passive investor in Canadian taxation terms. Currently such an investor has to pay capital gains tax and suffer capital cost allowance recovery if they sell an investment property even if the proceeds from the sale are then reinvested in another investment property within one year. If CREA get their way investors will be able to defer capital gains tax and capital cost allowance recovery when they sell investment properties and then reinvest the proceeds of the sales back in to other investment properties within one year.

So – the question presents itself – where should an investor invest in real estate in Canada in 2007 if they are to reap strong returns?

To tap into strong real estate profitability in Canada in 2007 investors basically need to apply commonsense when it comes to doing their due diligence on whether a market has room for expansion and whether it is enjoying, and will continue to enjoy, strong consumer demand for either rental or resale accommodation.

Simple!

A good example for a potential investor to examine is the city of Edmonton in Alberta where demand for properties for sale is outstripping supply and where the local economy is being supported greatly by the current oil sands driven boom. This is the sort of market an investor needs to preempt to derive as much profit potential from their investment decisions as possible.

Investors should also examine which Canadian towns and cities are going to be benefiting from upgrades to infrastructure such as communications and transport links because where an area is improving so desirability will increase and house prices will always follow. Also worth examining in Canada is the expansion of the local and international tourism market where residential letting opportunities could arise as well as commercial investment interests.

Commercial property investment opportunities also exist in the likes of Ottawa as well where vacancy rates are attractively low and construction is underway to supply some 800,000 square feet of prime, grade A office, retail and industrial space to a market hungry for such space. Basically investors who tap into this new supply could find themselves generating attractive yields in a relatively short period of time and opportunities like this exist all across Canada…in fact it is a nation ripe with investment opportunity!

Rhiannon Williamson writes about real estate investment worldwide, to read more about property investment in Canada in 2007 and beyond visit her site www.amberlamb.com

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