Real Estate Investing 101

Even as Ottawa’s new condo market slows, fat and heavy from a glut of new units, I am still solicited for advice and opinion from those looking at condos as an investment.

As a licensed professional I can only provide direct advice to clients, but my general thinking on real estate as an investment is best summed up by the time tested strategy of Warren Buffett, investor extraordinaire:

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

In fact, although Buffett is a value investor, I believe that most of his philosophy can be applied equally to real estate:

“The investor of today does not profit from yesterday’s growth.”

“Investors making purchased in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company [or condo] to catch up with the price they paid.”

“Most people get interested in stocks [or real estate] when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

May: hot or not?

With May being the traditionally "hot" month of the real estate market, the following numbers are interesting to note:

175 = downtown condos listed for sale in May
31 = condos that managed to sell
19 = condos who have reduced their price
115 = condos still trying to sell

2012 Condo Market Update

I attended a CMHC Market Update last week to hear their analysis and forecasts regarding Ottawa's condo market. Some points that caught my attention:

• Ottawa's population growth is due first and foremost to immigration—an incredible 50% of Ottawa's immigrants are classified as 'economic immigrants' who arrive with language skills, professional experience, financial savings and thus are able to settle quickly into both employment and homes within 4 years of arriving into town.
• Investors are currently purchasing a full third of new condo projects—20% of these investors are practicing a long term 'buy and hold' strategy, while the remainder plan to 'flip' their units upon the building's completion.
• Long-term investor interest in the condo market is fueled by Ottawa's low vacancy rates and high rents.
• Lastly, according to CMHC forecasts, Ottawa can expect a 'balanced market' for 2012, although sellers may regain the upper hand for the traditionally 'hot' spring market of April and May. Otherwise CMHC forecasts a slight decrease in prices, although this doesn't come as news to those of us who have been tracking downtown condo prices over the past 6 months.

Too Good to be True?

"Things are getting awfully bubbly-sounding in the Ottawa condo market. I see this in newspaper articles and also in the conversations I have with my friends. A few years ago all the articles were about young professionals rejecting the suburban norms and choosing to live downtown for the lifestyle. Now, every article I read is about some 20-somethings buying condos they can't afford and stating that it's a sure-fire investment, a can't lose situation. It makes me quite nervous. I bought my condo to live in it, but I also want to sell it and move someday. Let's hope this mini Ottawa bubble does not burst before that time..."

—Anonymous

Mortgage Changes Target Condo Speculators

I found the following comments from Finance Minister Jim Flaherty to be particularly relevant in light of next week's Tribeca launch and the number of queries I've been getting from first time condo investors:

“The underlying message is that Canadians should be prudent in the obligations they take on because we can all expect that mortgage interest rates will rise over time... The measures will not affect the ability of a Canadian family to buy a house. It will affect those who are speculating.”

Although the new mortgage changes are set to go into effect April 19, buyers should take note that some banks are implementing these changes immediately.

Affordability, stability of Ottawa real estate

Given that I have a few clients who live abroad, I found it interesting to read this week that foreign investors rank Canada in third place among countries providing the most "stable and secure" real estate investment:

http://www.thestar.com/business/article/752424--investors-park-cash-in-canada

And while I may seem biased, I would have to say that Ottawa is easily one of the most stable and secure regional markets in the country.

Although as a rule Ottawa real estate investments do not realize the sexy double digit gains seen in Toronto or Vancouver, neither have we experienced the bursting bubbles that are a fact of life in aggressive investment markets. In fact, looking at a 25-year retrospective of Ottawa real estate prices (average numbers, there are always exceptions), the graph has held steady or increased.

Will the current condo craze change Ottawa's enviable record of real estate stability? Truthfully, only time will tell. What I do know is that affordability is the cornerstone any robust real estate market. And with mortgage rates already rock bottom and brand new 1-bedroom condos nearing the $300K mark, one has to question how much higher these prices can rise without a corresponding increase in federal government salaries.