Is it Too Late to Profit from Property in Alberta, Canada?

The province of Alberta in Western Canada has the strongest economy of the entire nation and the lowest unemployment levels; the per capital GDP within the population corridor between Alberta’s major towns of Edmonton and Calgary is running at around 10% above that of average affluent US metropolitan areas and 40% above the average metropolitan areas in Canada.

What’s more, GDP in Alberta as a whole is over 50% higher than the national Canadian average and the province is the fastest growing in Canada in population terms.  All of these factors have had an incredibly significant and positive effect on property prices in Alberta in recent years - but the question that has to be asked at this point is, is it too late to profit from property in Alberta in Canada and is the boom over?

In order to answer this question it’s essential to examine the factors that have resulted in Alberta having such a positive property market and examining whether these factors will have a longer lasting effect. 

Alberta’s wealth is largely derived as a result of the fact that it is the largest producer of oil and gas in Canada.  In fact almost all of Canada’s rich oil sands are located in Alberta; you have Athabasca oil sands, Cold Lake and the Peace River deposits all in Alberta and between the three they are estimated to contain three quarters of North American petroleum reserves.

In recent years extraction, production and processing have all increased significantly and there has been a veritable explosion in the numbers of jobs becoming available in Alberta.  Many of the nation’s science graduates head towards Alberta upon graduation and employment vacancies have opened up not just in the broad range of industry related sectors, but in supporting sectors as well.  Unemployment levels in Alberta are currently the lowest they have ever been and there is still a severe shortage of skilled workers in certain sectors of the oil sand production industry.

Taking Edmonton as an example of the overall effect that oil sands have had on the economy of Alberta – not only is the city the main supply and service centre specifically for the oil sands production industry, it is one of the most significant distribution, transportation and commercial hubs in Canada purely but indirectly as a result of the oil and gas industry.  It supplies everything from banking services for oil employees to clothing, cars and furniture for oil families and it transports goods that supply the industry, its employees, their families and all of the support industries, their employees and families too!

While Alberta has reserves of recoverable crude bitumen and natural gas it will most likely continue to be the most affluent part of Canada – and there is nothing to currently suggest that there will be a rescinding of interest and activity in the petroleum industry any time soon!  At current extraction rates Alberta could continue to derive significant economic gain from oil and gas for at least the next fifty years, and according to the Petroleum Human Resources Council of Canada there may be 50,000 people directly employed in the industry in Alberta today, but by the end of next year there could be around 80,000 people directly employed with vacancies for a further 70,000 construction, manufacturing and service personnel opening up as well.

What all this means is that there is excessive demand for residential real estate in Alberta – and continuing high oil prices means that the oil industry is a lucrative one to work in so affordability levels in Alberta remain far higher than the average for the rest of Canada suggesting that while there is strong demand for real estate there is also sufficient affluence in the market to afford increasing property prices.

One of the main locations where oil industry employees live is Fort McMurray; here you need USD 700 a month just to rent a small room in a shared mobile home!  The community is so short on the supply of rental real estate because many just arrive in Fort Mac on the off chance of securing employment.  The lack of property available has actually been regularly cited as one of the main obstacles to the ongoing development of the oil producing industry.  Significant pressure has been put on Alberta’s government and they have just agreed to release Crown Land for residential real estate development – definitely a factor that will result in significant property profits being made by those who have the financial resources to move very quickly.

Genworth Financial Canada, part of the GE group supplying among other things mortgage insurance believe that Alberta’s property market is actually unique in the fact that it will continue to grow, and grow, and grow!  Their most conservative estimates see in excess of 12% gains just for apartments in Calgary in 2007 with the potential for at least 4.5% gains until 2010 and over 18% gains for apartments in Edmonton in 2007 with around 4.1% increases possible until 2010.

It does seem that the investment property climate in Alberta in Canada is totally unique and this suggests that it is certainly not too late to enter the market.  But buyers need to be aware of certain factors.  To make investment property in Canada pay from a rental perspective you really need to derive rent worth at least 8% of the buying price of the property and even though rental rates are high in much of Alberta, so are property prices.  Do your homework, find out how much rent is average for a given area and then work out how much you can afford to put into property to really make it pay.

Another slower burning but significant issue to be aware of is the increasing pressure being put on Canada and in particular on Alberta as a result of the 1997 Kyoto Treaty or agreement to cut greenhouse gas emissions.  Not only has Alberta been leading the job and economic boom in Canada, it has been leading the emission boom as well and this is just not an acceptable situation – something drastic and dramatic is going to have to occur and this could affect property prices and is a factor one must not ignore or underestimate.

Unlike America, Canada accepts the concept of global warming and that we all have to play a part in cutting emissions to protect the future of the planet.  It’s likely the Canadian government will take action to force the oil sands production industry to reduce carbon emissions and this could reduce productivity or profitability and therefore reduce the appeal or the employment potential of the industry and cut demand for property and reduce the value of real estate.

Over the short to medium term we believe property in Alberta will be a profitable investment avenue for an investor to examine – but leave it much longer and it’ll be an all too expensive commodity to attract much interest and over the much longer term the general appeal of Alberta could waver which could cause declining property prices and rescinding interest in real estate for sale or rent.

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