Heading in to the second year of a COVID-influenced market, real estate in Alberta has seen its fair share of highs and lows. What began as a sluggish spring in 2020 bloomed into a busy summer, wrapping up with one of the strongest finishes to the year to date. With sales volumes and prices increasing modestly year over year, more and more investors are braving the turbulent economic climate in search of opportunity.
As Edmonton-based home and condo specialist Alison Murray, Realtor®, notes, the forecast for the region’s real estate market is not “doom and gloom” as one might think.
“Edmonton is seeing signs of life in all housing segments, especially single-family homes. Sales were up 31 percent year over year for the month of December, and inventory down 31 percent,” she says. “With low interest rates, competitive prices, and a growing population, I think that investors will see solid growth over the next 10 years.”
Whether a family of newcomers to the area, a young person new to the real estate market, or a rural student moving closer to post-secondary, rental properties continue to be the focus for many. As Edmonton continues to expand its network of rental properties, more renters will be drawn to the area in search of affordable accommodation.
Murray shares, “Edmonton is a growing city and a solid place to invest in real estate with a rich culture and young, educated people.”
For Keith Reading, director of research at Morguard, the steady performance of rental properties comes as no surprise.
“Rentals have a long history of performing well during turbulent economic periods. With the pandemic, the economy has taken a hit and the one constant is people need a place to live, so rental apartments are a necessity. The government has supported families through the CERB program and as a result, those government payments have ensured families and individuals can still pay their rent. Not surprisingly, the apartment sector has performed relatively well. Investors have looked to the sector as a source of safety and fairly attractive returns through the pandemic.”
Rental properties aren’t the only investments drawing attraction. With many retail businesses transitioning to online shopping, industrial properties such as warehouses have outperformed their real estate counterparts as more and more stores find themselves in need of storage space to fulfill online shopping demands. Reading identifies industrial as the “shining star” for commercial investment properties. On the other end of the spectrum, the short-term outlook for retail and office investments are, generally, not enticing.
“We have record high vacancy in Edmonton, rents that are lower than they have ever been, and you have a lot of empty space. For offices, you’re looking to take on a lot of risk and we’ve seen most investors staying away. In the case of Alberta, it could be several years until we see improvement in the Alberta office market,” he says. “If you were an investor looking to take on a lot of risk, retail is what you would look at, but we really haven’t seen a lot of investment there because people don’t want to take on that risk and they’re not sure what that risk looks like going forward.”
Though office and retail continue to struggle with high vacancy rates and weak demand, other investment properties are drawing attention and encouraging competition. Reading explains.
“What’s interesting is that there is a lot of capital looking at real estate and it’s not just the big corporations – it’s private groups. There’s lots of competition for industrial and rental, while there’s not so much for retail and office. At Morguard, we see that as we come out of this rough economic period, investors will start taking on more risk.”
The economic disruption caused by the pandemic paired with competitive pricing has sparked greater interest in real estate. In the residential scene, house flipping and buying to rent are becoming increasingly popular as Albertans look for alternative ways to increase their household income. Though there is money to be made flipping houses, Reading notes that turning a profit is not as straightforward as some might believe.
“The issue with fixer uppers and flips is you’re taking on a longer-term view. You have to put work into the property. If you think you’re going to make a 6 to 7 per cent return, that can quickly turn into a 2 to 3 per cent return if repairs cost more or you can’t get the price you expected,” he says. “Investors should carry out an extensive financial analysis of the property. That is, what rent can they charge, what will the property cost to carry, and what can the investor achieve in terms of a return. If you do all that homework, it can be really quite lucrative.”
Reading is not alone in his cautious approach to residential investment properties. As Tom Shearer, chair of the board of directors for the REALTORS® Association of Edmonton, explains, turning a profit is not as simple as snatching up low-priced properties in the city.
“Investing in real estate is a long-term game. For investors looking for quick appreciation, Edmonton may not be the right market right now,” he notes. “With that said, compared to many other major market areas across the country, Edmonton has reasonable prices and the opportunity for upside. Overall, our pricing has remained very stable through challenging years and real estate in Edmonton is relatively liquid. Low-rise and high-rise apartments are becoming reasonably priced again, and while values have come down, the rental rates have not dropped at the same rate.”
Flipping houses and investing in rental properties can be a lucrative source of income for investors if they know what to look for in a property. While houses in need of repairs may come at lower upfront costs, the investment can quickly go south if maintenance gets out of hand.
“When you must do substantial renovations such as moving walls or adding rooms, it eats into your turn around time and profit. You do not always have to go after a distressed sale to get a good deal. Choose an investment property that will require as few inputs as possible. Fixer uppers can be affordable, but you will have to spend money eventually,” Shearer explains. “While this may sound cliché, always choose to invest in a property that is in a desirable area. You know what they say – location, location, location! Buyers will overlook possible deficiencies in a property to be in a neighbourhood they want to live in.”
With its sturdy foundation, real estate has a history of maintaining healthy markets despite economic turbulence. As we have seen from the strong 2020 finish, the market is ripe with opportunity. Despite the uncertainty surrounding COVID-19, investors remain active in the investment property scene, albeit not every property type is enjoying the flow of capital. Those looking to generate revenue through investment properties can take advantage of low interest rates and competitive pricing, but as Murray, Reading and Shearer express, getting the best bang for your investment buck demands careful planning and plenty of research.