November 18th, 2011 11:32 EST
Canada's Economic Decade
For quite some time, Canada has played David to the US`s goliath. However, the recent economic crisis is causing the roles to change as Canada becomes an economic safe haven. International investors continue to increase their stake in Canadian real estate, causing real estate prices to rise even during tough economic times. Canada provides these investors with a palpable sense of safety and steady returns, which is a drastic change from what they can expect investing south of the border.
Canadians don`t realize the gold mine they are sitting on. This is our turn to shine and help get the world out of the doldrums. As Canadians, we`re programmed to play robin to the US`s batman. This mindset causes us to relax and let others take the lead. Well it`s time for a paradigm shift. We are in the first year of what will prove to be Canada`s Economic Decade. Instead of looking elsewhere for investment opportunities, Canadians need to realize this is the best time to invest in this country, if they haven`t done so already.
Many Canadians continue to invest south of the border for the wrong reasons. A low price for real estate doesn`t mean the property is undervalued. Structural unemployment issues in the US will continue to depress prices in many areas of the US. Not to mention other factors " currency risk, taxation, national debt, and property supply and demand " will have a considerable impact on preventing real estate prices from rising in the foreseeable future.
Another way of looking at it is buying a luxury car for half price but ignoring the fact that it comes with several defects such as torn seats, scratches, malfunctioning onboard computer, and so on.
Economic fundamentals are the key to investment success. Only considering real estate prices is a flawed way to predict the future of the market. Would you drive a car while looking in the rear view mirror? Of course not, you will crash! Current prices reflect economic data from the past. Essentially, real estate prices are correlated with job growth and the unemployment rate. As long as the jobless rate remains high, real estate prices will remain at their current levels.
Essentially, more jobs entice population growth. This leads to an increase in rental demand. The price of rent increases, which encourages people to purchase properties. This in turn leads to property price increases.
Canada is creating jobs by being the world`s supplier of food, fuel, fertilizer, and forestry. These are all commodities that are essential to life on this planet.
Many Canadian real estate markets will have rising prices over the next 10 years. For example, the province of Alberta created more jobs in one month than the US in the same period. Alberta has a population of 3.5 million while the US has a population of approximately 311 million. This job growth will cause real estate prices in Alberta to increase within the next two years.
At the current moment, the world economy has many problems and an uncertain outcome. However, with risks come opportunities and potentially high rewards. Job growth and population growth influence long-term demand. Moreover, Canada is the home of many of the resources the world needs to survive and more importantly, these foreign countries are eager to pay a high premium to obtain these resources. Savvy international investors recognize the long-term potential of betting their capital on Canadian real estate, as they consider tomorrow`s demand, not today`s prices.
Written by: Igor Tumbas