Real Estate Profitability in Canada in 2007

Canada’s property market has been less affected than America’s or Britain’s for example, when it comes to the global slowdown that real estate in established marketplaces has suffered of late, and real estate profitability in Canada in 2007 will remain strong with the Canadian Real Estate Association going to great lengths to lobby the Canadian government to endorse and ratify significant tax changes to make investing in Canadian real estate even more attractive for the smaller investor from 2007 onwards.

It’s important to note however that there are certain economic facts that could negatively impact the real estate marketplace in Canada in 2007 and an investor needs to be aware of all the facts, both positive and negative, that will likely affect their investment decisions going in to 2007; rest assured this report covers both angles…

On the downside, firstly 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 market and construction activity particularly in eastern towns and cities.  The question of ‘affordability’ has entered the market with some concerns about whether median house prices have hit a ceiling beyond which average home buyers cannot afford to enter the market…but the Bank of Canada’s December 2006 decision to leave interest rates unchanged going in to 2007 may give buyers back a little more confidence.

Secondly, according to the Organisation for Economic Cooperation and Development 2007 could see Canada’s GDP growth rate under perform previous expectations of it.  In 2006 GDP growth has been about 2.8% and this is predicted to decline to 2.7% in 2007 before rebounding firmly in 2008 and beyond.  Consumer price inflation is also set to follow a similar pattern while core inflationary levels (excluding fuel) should rise from 1.9% to 2.1% before settling down to about 2.0% in 2008.  All of these statistics suggest that consumer activity could be depressed a little in 2007 and this will of course affect the housing market – but for an investor this is not all bad news – far from it in fact…

A depressed housing market can provide an excellent time to enter the property investment cycle as an investor can negotiate harder with vendors and buy properties at below their market value with the aim of holding them until the market rebounds and assets can then be sold on with capital appreciation subsequently enhanced and realized relatively quickly.

There’s even more to get excited about in Canada in 2007.  As mentioned earlier the Canadian Real Estate Association is doing everything it can to raise the government’s awareness of the taxation injustice that currently exists and which affects smaller real estate investors.  Currently investors who employ less than five employees and who are considered ‘passive investors’ by the Canadian tax authorities have to pay capital gains tax and suffer capital cost allowance recovery when they sell an investment property even if the proceeds of that sale are then reinvested in another investment property within one year.  This situation does not exist for larger investors; larger investors can 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 - and if the Canadian Real Estate Association have their way, and all evidence suggests that they will as the changes actually benefit the government over the long term, this is exactly what smaller investors will be able to do as well from 2007.

This will encourage more investors into the marketplace though and will mean that competition for the best properties will heat up! 

You never can have it all ways! 

But it will also mean that more is invested into the supply of rental accommodation for example, which in a number of towns and cities is currently in short supply which will be a positive development for Canada.

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.  An example of such a buoyant market exists at the moment in Alberta in the city of Edmonton 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.

Other tactics that an investor can apply include examining which towns and cities are going to be benefiting from upgrades to infrastructure such as communications and transport links…where an area is improving so desirability will increase and house prices will follow.  Also worth examining in Canada is the expansion of the local and international tourism market.  In a recent article on Amberlamb we showcased ski properties in certain eastern Canadian provinces as having investment appeal as growing numbers of Britons, Irish and European visitors are traveling to Canada as a result of low cost flights and the superiority of Canadian ski resorts for example.

Finally, investors wishing to diversify away from residential property also have room for real estate profitability in Canada in 2007 in the commercial property marketplace.  Taking Ottawa as a prime example, vacancy rates are attractively low and already 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.  Investors who tap into this new supply could find themselves generating attractive yields in a relatively short period of time.

Special Reports: Property News for Canada

Canada for Real Estate Investors
Why investment in Canada's real estate market consistently returns healthy gains for property investors.

Canada Real Estate Investment
Real estate investment opportunities in Canada are generally plentiful and offer solid long term growth and yield prospects.

Canadian Real Estate Purchase Process
A real estate investor buying property in Canada benefits from a well established and regulated purchase process