Edmonton Real Estate Investor: November 2007

It's not B.C but it's almost Toronto.

Alberta's affordability has suffered in the last year due to incredible housing price increases. Although we haven't become one of Canada's worst areas we moved up the ranks. The thing is affordability declined across most of the country. Alberta isn`t doing terribly but we need caution. This RBC report went on to say that the economics in Alberta are supportive.

"Albertans now pay a higher share of their country-leading incomes on average than Ontarians across every type of housing, although Torontonians still pay more than Calgarians and Edmontonians for a two-storey home.

Albertans now pay a higher share of their country-leading incomes on average than Ontarians across every type of housing, although Torontonians still pay more than Calgarians and Edmontonians for a two-storey home. Alberta is still, however, avoiding British Columbia’s stressed affordability conditions."
Read More From RBC Reports

Some of Edmonton's most prestigious office space has increased in value close to 43% over the last year and are projected to shoot up another 8 to 10% next year. Bringing this city's global rank 93 places at $46 per square foot. Even with the incredible jump we are still on the discount side though.

Calgary tops Canada's offices with total occupancy costs of $64 per foot. Toronto comes in at $63.35 and $49.98 in Vancouver. The world's most expensive office space is West End London at $326.67 Cdn, trailed by Bombay's $188.22, London City at $179.57, Moscow at $179.55 and Central Tokyo at $177.40.

The office space in Edmonton will be getting tighter as more companies expand their bases in Canada.

Alberta's boom is affecting it's neighbouring provinces in many ways. From borrowing their young workforce to increasing their property values. The ripple of the billions of dollars invested in Alberta is obvious.

In B.C not only are they catching the run-off of smaller oil companies that can't bear the new Royalties Revision but rich Albertans are buying up water front property like it is going out of style.

The other way Saskatchewan has seen property values rise as native Saskatchewans who have made their money in the oil sands return home and bolster up. The province hopes to attract more of its 125,000 youth lost to the boom province and to scope up some oil sand overflow.

Our neighbours are doing well but it is still Alberta that everyone is investing in now. The Royalties Revision is said to have cost Alberta $10 Billion in projects but there is still close to $170 Billion in projects that are on the way.

A few month ago there was some talk of reducing the use of natural gas in the oil sands and instead using geo-thermal heat to steam the bitumen out of the sticky tarry sand.

The energy is consistant, can reduce the emissions of greenhouse gases and requires a small staff load.

"People are becoming more aware of it...." "Also, the biggest reason would be the energy cost of (conventional sources) and the cost savings with (prices of) fossil fuels rising rapidly." Rick Nelson, general manager of Kelowna-based GeoTility Systems Corp.

Rick Nelson hopes that geo-thermal energy will supply 20 to 30 per cent of Canada's energy needs within 5 to 10 years.

To Read This Article Click Here

"Cheng and Wong admitted to the panel that they raised approximately
$3.5 million from roughly 150 Alberta investors, as part of the
development of three real estate projects to be undertaken by Carling Development Inc. and Carling Development (BC) Ltd. None of the projects
has been completed." CNW Group


"At the height of the gold rush, a gang of con men operated in Skagway under
the leadership of Soapy Smith. One of Soapy's best cons involved his "telegraph office."
Recent arrivals were greeted by men who offered to send telegrams to their families for only $5.
Most people did not look behind the "telegraph office" to notice that the wires ended a few yards
out."  Postal Museum

Like the Gold Rush in the late 1890`s Alberta's oil boom is bring con - men out of the woodwork. If you are investing then you should take care to do due diligence and get independent legal advice. Make sure your investment isn't like Soapy's telegraph wires that end a few meters behind a facade.

The Edmonton Transportation Effect a report released by Don R. Campbell shows how real estate price increases due to proximity to transportation can be applied to Edmonton.

The results show that homes near new extensions of the LRT and Anthony Henday Drive could see prices rise by 10 to 20 per cent above the Edmonton average over the next three to five years

"When people look for a property to purchase, be it their primary residence or an investment property, they take into consideration affordability, commute times and commute costs," Don R. Campbell President of REIN, author and real estate researcher

Mr. Campbell expects areas like Parkallen, Twin Brooks, Ermineskin, Belgravia, McKernanand Sky Rattler all in Edmonton's South side to see the biggest impact.
Wayne Mandryk, Edmonton's manager of transit projects, confirms that the LRT will likely have a positive effect on adjacent property values.

"Generally speaking research shows that land near transit stations rises in value," he said. "Certainly anyone looking to rent or sell will advertise the fact that it's located close to public transit."

The Edmonton Transportation Effect is available free of charge to non-members. It may be ordered by email at:

info@albertarein.com

Neither Todd nor I come from ostentatious beginnings. We were born to first generation Canadians who become solidly entrenched in the middle class and made their way in this new cold country. I wouldn't say we ever had it rough. Well sometimes it was a little rough.

Don Lam, now he had it rough. His family fled from Vietnam in 1975 on a leaky boat with about 170 people crammed from one end to the other, they ran out of water after 6 days, managed to avoid pirates and storms. They left to escape persecution when the communist north took over southern Vietnam and finally made their way to Canada.

Now he manages a $1.8 Billion US investment fund in Vietnam.
Now that is success.

Click Here to read his incredible story

Edmonton's market is still is a plateau which means if you are a buyer you can get some incredible deals. Financing , down payment and terms are all open for negotiation. Especially if you are adept at trawling older listings many people want to sell now.

"Price increases in both Calgary and Edmonton will be more in line with a balanced market. We've had a huge increase in listings in both of those markets. The big run-up in prices has affected affordability and, with it, the number of people who can qualify to purchase."Gregory Klump, CREA's chief economist

Currently 9,753 active listings on the Edmonton market which means you can pick and choose. This won't last long - CMHC predicts price increases in 2008.

What were you afraid of last year? Do you even remember?

Yesterday I was driving to a meeting and listening to my newest REIN CD's. REIN is a real estate investment group that focuses on Canadian specific real estate investing led by bestselling author Don R. Campbell.

REIN has monthly meetings across Canada but because Todd and I are out of the country so often we get the meetings on CD sent to us at our Japan office.

No matter where you are you have heard of the Alberta Royalties Tax Revision and if you are an investor in Alberta then perhaps you are concerned about what will happen and how it will affect your properties. If you were thinking of investing but the Royalties are holding you back; then you must read on.

Don R. Campbell summed it up nicely. People worry every year, day and minute. There is a no shortage of things to worry about, many people let this stop them from acting. However, if you do let things stop you, you will never get anywhere.

"I can't invest now the _______ have ruined the economy/world" or "Everything is going to a hot place (I don't mean Tahiti) in a hand basket because_____!" can be the excuse de jour.

His Summary of 2000- 2007 will bring back memories:

2000 - Y2k
2001 - Kyoto Accord/9-11
2003 - SARS/ WMD's
2004 - BSE/ Bird Flu/ West Nile Virus/ US Terror Alerts
2005 - Tsunamis, Katrina/ London Subway Bombings
2006 - Oil Crisis $60 a barrel oil
2007 - Rent controls/ Royalties

Of course many were terrible events for those directly affected. How did they affect you then?

His point is if we let every monster under the bed stop us from acting where will we be when the Royalties are just a memory, like the rent controls are today?

Alberta premier wants provincial trade barriers dropped -"Premier Ed Stelmach says Alberta is feeling the economic pinch from the soaring dollar, so it's time for the premiers to start talking about eliminating trade barriers between provinces..." " Stelmach says that eliminating this barriers would Stelmach says eliminating such barriers would increase productivity and competitiveness, build a bigger economy and help Canada compete with other trading nations."

Hotel tax boosts tourism budget -"With that 23 per cent increase, there will be an increase in attention to Western Canada, with a really a strong focus on Alberta. There will also be a very strong focus on Canadian and American leisure business."

"The plan is to continue to attract Albertans, given that a booming economy, higher salaries, disposable incomes and growing populations in Edmonton, Calgary and Fort McMurray all point to huge potential for both leisure and business travel to Banff."

Council Mulls Big Tax Hike -"A hike of 10.9% would cost the average homeowner another $164 a year, when increases in the waste management fee, sanitary sewer utility and land drainage utility are factored in.

The average Edmonton homeowner is defined as someone who owns a single-family house assessed by the city at $243,500. The city assessment is often much lower than what the home could fetch on the market." $164 a year is not that much if your property value is rising.

Penn West says Alberta's boom pushed royalty hike -" "We're concerned that the government has increased its take from our sector," "But that's offset by the knowledge that additional funding is required to keep up with the needs of our expanding population, who we greatly depend on for our labor, our knowledge and our services." Bill Andrew Penn West, Canada's No. 2 energy trust's chief executive

"The new cash has created thousands of jobs and a population boom in the province, squeezing strained services and infrastructure that had grown run down and inadequate after more than a decade of government spending cuts.

To cope with the additional demand, the Alberta government plans to spend close to C$20 billion over the next three years on new roads, schools, hospitals and transit, with the royalty hike contributing an extra C$1.4 billion in revenue annually."

PricewaterhouseCooper's Emerging Trends in Real estate indicates that people in the real estate industry in Canada are more positive about their prospects for 2008 than their counterparts in the United States.

"The annual Emerging Trends in Real Estate report, from PricewaterhouseCoopers and the Urban Land Institute, shows 36 per cent of respondents in Canada who participated in the study viewed their prospects for profitability next year "very good," and another 22.4 per cent said they are "excellent."

By comparison, 34.3 per cent of U.S. respondents said the chances of a profit in 2008 are very good, and 19.3 per cent said they are excellent. The report is based on interviews with more than 600 real estate professionals -- including investors, developers, brokers and lenders -- in Canada and the U.S." Full Article Click Here

I especially like at the end of the article where they propound Calgary and Edmonton's forecast for 2008-

"Calgary and Edmonton rate the highest as far as investment prospects in real estate, though the report says it's unclear whether the recently announced hikes in royalties for oil-and-gas firms in Alberta will affect this.

Calgary is referred to as "Canada's resource capital" and "North America's No. 1 boomtown." All real estate sectors here are strongly recommended, particularly hotel and industrial/distribution properties."

gen x

I am worried about my generation. They didn't want anything and now when they realize, "Hey money is all right!" They are so in debt that they can't get ahead nor can they save for their future.

This article is such an eye opener for me, I am so happy that I made the choice to give up new clothes, that cool car and nice furniture for a few years to pay off my student loans and all my credit card debt. I am also happy that I learned to invest and wait, to not let my current appetite steal from my future feast.

Facts From OppeinheimerFunds

* 62 percent say they live paycheck to paycheck

* 56 percent have an outstanding credit-card balance of $3,000 or more.

* 62 percent of women say they have not bought any investment products.

* 45 percent of women would buy 30 pairs of shoes before saving $30,000 in retirement assets.

* 65 percent of women and 48 percent of men said they do not know how a mutual fund works.

* Nearly 65 percent did not know that when interest rates go up bond prices typically go down.

* 38 percent of women have not started saving for retirement.

"Generation X may have shed the slacker image over the past decade as its members moved beyond coffee shop jobs and into the suburbs, SUVs and corporate boardrooms. But when it comes to saving for retirement, the description still fits.

Most Gen Xers, the oldest of whom are heading into their 40s, are woefully behind in saving for retirement. Nearly half of the 5,000 Gen Xers surveyed by Charles Schwab this year said they are so saddled with debt or live on such tight budgets they can’t even think about saving." Read Full Article Click Here

According to the CMHC Edmonton's apartment vacancy rate is at 1% with a forecast 0.8% next year. We hold a lot of mid to upper end units and we see a higher vacancy rate. Our units priced from $1600 (half duplexes or townhouses) to $2000 (3 to 5 bedroom houses) are renting but not as quickly as about 5 months ago. The vacancy rate amongst that range of units is closer to 4%.

A lot of houses on the rental market are those that investors couldn't sell in the current plateau. Some new landlords are not aware of the market conditions are are asking too much or too little for their property. However that "just right" is quite hard to find.

So if you are in low to mid range apartments you should have no problem renting if you unit is quality. Mid to higher end units now is the time to use a bit more effective marketing to get the perfect tenants. And remember winter is a harder time to rent.

Wondering how your area of the country is doing as far as real estate value and investment goes? The leading real estate analysts at PricewaterhouseCooper have released their annual Emerging Trends in Real Estate 2008 report.

Here is how Calgary and Edmonton fare:

 Canadian Markets to Watch

"The report comments on how Canadians like to live and work in central cities, as long as they can afford it. If housing is too pricey in 24-hour
neighbourhoods, people move to inner-ring suburbs or beyond and commute back into the cores. Investors, especially the institutions, are concentrated in
downtown areas too. Planners and developers focus on infill and more vertical projects, which reinforce the urban cores. The hot-growth energy cities out
west - Calgary and Edmonton - score the highest ratings for investment prospects, development, and for-sale housing, although it is not certain
whether the recent announcements on royalties will have any effect on this. Toronto, Canada's premier global pathway city, and Vancouver also have high
ratings. Ottawa and Montreal follow, with Halifax lagging."

   Calgary/Edmonton

"Calgary is the Canada's "resource" capital and North America's number-one boomtown. Survey respondents foresee strong buys for all sectors: 53.5% give a
buy recommendation for Hotel Property, 52.8% for Industrial/Distribution, 48.1% for Retail and Apartment Residential and 44.6% for Office Property.
Furthermore, on average the majority of respondents see Calgary For-Sale Homebuilding prospects as very good. Edmonton is closely mimicking the
Calgary-style growth wave and as long as demand for energy resources stays strong, this market will continue to do well."

For Vancouver, Montreal, Ottawa or Halifax market info read here .

canada

All though the sales are down in the third quarter of 2007 CREA says not to expect a crash because we are still in line for a record year.

"The Canadian Real Estate Association, which represents boards across the country, says sales in the third quarter were down 3.2% from the second quarter. However, the second quarter was the best quarterly period ever for housing sales.

The third quarter decline was driven by a relatively minor slowdown in Alberta, Ontario and Quebec. British Columbia saw a jump in sales in the third quarter.

For the first nine months of the year, there were 419,342 sales across the country, an 8.4% increase from a year earlier. There were 213,547 new listings in the third quarter, the second highest level ever." Read Full Article Click Here

Alberta premier urges oil sands firms to negotiate - "I'm sure, at the end of the day, those companies will realize it is in the best interests of their shareholders ... to sit down with the government and look at the two agreements and discuss how we can reach a solution," Ed Stelmach

Alberta launches initiative to attract skilled labour - “We’ll work on the apprenticeship strategy and make sure that people that want to retrain, earn new skills and get opportunities to get engaged in construction get that chance.”

Slim majority favours nuclear power in Alberta - "What we see are a slim majority in favour of building a plant, but there are also 25 per cent who are very unfavourable which is a fairly large group to have strongly opposed to something, and it is larger than the group that is very in favour (20 per cent),"

Alberta tops survey with largest pay increases - "Alberta's labour shortage is creating a "ripple effect" that is driving up wages across the country with pay increases for non-unionized workers expected to average 3.9 per cent in 2008, says a study released yesterday by the Conference Board of Canada."

Alberta will maintain its lead in housing starts per capita across ... - " Canada Mortgage and Housing Corporation (CMHC) will host their annual Alberta Housing Outlook Conference today at The Westin Hotel. This sold-out event brings together over 400 housing experts, speakers and conference participants to discuss the economic, demographic and financial factors that will impact Alberta's housing markets over the next year."

'Bottlenecks' an issue in Alberta investing - "To date, the biggest constraint for many natural resource producers currently operating in the region has been bottlenecks in labour and investment, rather than profitability," Mr. Tilton wrote in a research note Tuesday. "High and rising oil prices are steadily improving the cash flow from such projects."

Don’t be surprised by the Royalty tax.

It’s short-term pain for long-term gain, by the gain; I’m referring to the extraction and economic spin-off that the oil sands create in general.

The royalty tax is like when you buy your kids the hottest pair of ‘must have’ sneakers and a few months later they outgrow them (both on the cool factor and on the growth factor). You had to buy the shoes, because your kids needed something to wear. It would be great if they last 2 years, but if they don’t maybe you can pass them down to your younger son if they’re not too trashed.
If the $1.4B annual collection from the royalty tax is put to good use, then Albertans will benefit both in the short and long term (we’ll all get new shoes).

royalties
If the cash is squandered and we’re only left with some grotty old ‘hand me downs’ to pass along to our younger generation, we’ll be pretty teed but we’re still not too bad off because the revised royalty taxes aren’t extreme enough to strangle the golden goose of our current economy.
The intention is of course to pass along our provincial wealth to younger generations, and to prevent giving them a shoddy deal (stinky, holey sneakers.

It was indeed interesting to watch the stock market swivel and gyrate as the royalty review was released. Prices of oil sands stocks dipped a bit, and then actually closed a quarter of a percentage point higher after the news soaked in. The energy sector as a whole was up 0.17
Oil was at $93.00 a barrel on Monday (10/29) and the Canadian dollar bought $1.04 USD, which is a first since ’74. We may not necessarily want such a strong dollar in the long term, but it’s still nice to see the strength.

My comments are oversimplifying a complex subject. At the end of the day, we’re still ahead and well on track.

Alberta’s energy industry will endure growing pains and wear out many pairs of sneakers along the way, as the economy grows stronger.

It always hurts a bit to break in a new pair of shoes. Blisters form and they’ll be a few cases of athlete’s foot. However once you get everything broken in and settled you are left with a comfortable fit that lasts a lifetime.

Recently we’ve experienced an overstock of listings, sub-prime scare in the U.S. and the royalty review…

What a perfect time to pick up a deal.

This article was first published in Glenn Simon Inc's Alberta Investment Newsletter

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