Prices encouraging trend, but experts warn against spectacular increases repeating
Michael Kane
Sun
BRIAN SPROUT/SPECIAL TO THE VANCOUVER SUN Elton Ash, regional vice-president Re/Max Western Canada, shown in the Kettle Valley subdivision, says the promise of rising real estate values is influencing investors.
Strong real estate prices have one in six Canadians planning to buy an investment property in the next two years, a survey suggests.
But experts caution they shouldn’t be counting on the spectacular price increases of the past five years to repeat.
While prices rose 12 per cent in Vancouver last year, and 16 per cent in Victoria and Kelowna, Re/Max Realty is forecasting an eight-per-cent average increase across British Columbia this year, and about five per cent nationally.
British Columbia has more real estate speculators than other areas of the country but they are not a great percentage of the overall investor market, said Elton Ash, regional vice-president of Re/Max for Western Canada.
“Compared to other markets, there is a greater segment of people looking at buying with the intention of reselling in the next one to two years,” Ash said in an interview.
Asked if they are vulnerable to a market downturn, he replied: “We don’t see the market changing dramatically in the next two years.”
Although vacancy rates are relatively high compared to past years — making it tougher to find tenants — and stock markets have bounced back, Ash said the promise of rising real estate values is a major factor influencing investors, particularly in B.C. and Alberta.
The survey of 1,200 homeowners across the country also found that potential investors are fairly young. About 43 per cent of those intending to invest in property in the next two years are under 40.
That concerns Jim Rogers, chair of Rogers Group Financial in Vancouver, because younger investors may think that real estate prices go straight up.
“I would remind these folks that the average Multiple Listing price for a home in Vancouver fell by 20-25 per cent between 1980 and 1981. It took until 1986 to get back to 1980 values.
“Inevitably, when everybody decides it’s a great idea, it is not a great idea any more. It is too late, and that is what I worry about here. They are basing their future decision on the last five years.”
About 50 per cent of investors indicated they plan to hold their properties for 10 or more years, although Ash said they might be inclined to move on to their next income property if they were to realize a tidy profit in the interim.
He added that many younger people are entering the market with help from baby boomer parents who want to help their children before they die.
“I don’t think our younger people suffer from lack of experience,” Ash said. “They are better educated and more sophisticated about investing than the baby boomers were at that age. This is the age of information technology and information wasn’t so accessible back then.”
Close to 30 per cent of those polled already own one or more investment properties and about 18 per cent indicated that real estate represented more than 51 per cent of their total investments.
Rogers said 51 per cent is too much and a balanced portfolio would contain no more than 30 per cent real estate, 30 per cent fixed-income securities such as bonds or GICs, 30 per cent equities, and 10 per cent cash, or cash equivalents. He noted that major pension funds, a handy proxy for how to invest over the longer term, have no more than 10-15 per cent of their holdings in real estate.
The Re/Max survey was conducted by Toronto-based Hart & Associates with results considered accurate within plus or minus 2.5 percentage points, 19 times out of 20.
REAL ESTATE PRICES:
What goes up can go down. Hefty increases in real estate prices are expected this year. However:
16%: Last year’s average increase in Kelowna and Victoria.
12%: Last year’s average increase in Vancouver.
8%: This year’s forecast increase across B.C.
5%: This year’s forecast increase across Canada.
20-25%: Average decline between 1980-81.
Source: Re/Max, Rogers Group
© The Vancouver Sun 2006