Real estate investors need to
be aware of
five
fundamental factors
about an individual market
before making an investment
there. These five factors are an
area's economy, population, real
estate cycle, political
leadership and transportation
improvements.
To show these factors at
work, here are a few facts about
the area of Alberta that I
invest in. These facts spotlight
both the awesome economic power
of the region and address the
five factors investors should
research about a real estate
market:
- Alberta's more than 174
billion barrels of remaining
established oil sands is
enough oil to fill more than
nine million Olympic-sized
swimming pools and
produce more than 200 years'
worth of high quality oil.
Daily oil production was 1.7
million barrels per day in
2005, and by 2015, Alberta
is expected to produce more
than three million barrels
per day, becoming the
world's third largest new
crude producer. Fundamental
factor: economy (supply and
demand).
- Oil sands producers move
enough oil sands and
overburden every two days to
fill Toronto's Sky Dome or
New York's Yankee Stadium.
Fundamental factors: economy
and population (large number
of workers required to carry
out this job).
- Alberta's oil sands
underlie 140,800 square
kilometers (54,363 square
miles), encompassing an area
larger than the state of
Florida. Fundamental factor:
economy (growth).
- Alberta has more than
$178 billion invested in and
allocated for energy-related
projects. Fundamental
factors: economy and
political leadership
(investments).
- Alberta is a debt-free
province with a combined
surplus of more than $14
billion—with a population of
only three million people.
Fundamental factors:
political leadership and
population.
- KMPG's Competitive
Analysis 2006 study shows
that Canada, for the sixth
year in a row, leads all G7
nations for cost
effectiveness. Fundamental
factors: economy
(investments and future
growth).
- Alberta's population
grew by 76,502 people in
2006, a 3 percent
increase—triple the Canadian
growth rate and the highest
growth rate in 25 years.
Alberta is projected to add
about 30,000 each year for
the next 10 or more years.
Fundamental factor:
population.
- Canada is America's
leading supplier of imported
oil, natural gas, uranium
and electricity. Fundamental
factor: economy (growth).
- Alberta has a
multi-tiered economy, and
the GDP in 2005 was $218
billion. Alberta leads
Canada in GDP growth rate
with a growth rate of 4.3
percent per year. Besides
being the only country in
the world with a surplus of
investible oil, the province
of Alberta has a diverse
range of industry sectors
including energy,
agriculture, forestry,
manufacturing, retail, IT
and health. Fundamental
factors: economy and
political leadership.
- Because of the long term
economic outlook of Alberta,
coupled with the highest
salaries and lowest taxes in
Canada, the business growth
climate is measured in
decades instead of years.
Building construction has
increased, property values
are rising and the vacancy
rate is at just 2 percent.
Transportation improvements
include a massive ring road
connecting Edmonton to
Calgary and oil centers as
well as new light rail
transit section to areas of
the city, thereby increasing
real estate values. The real
estate cycle is in
mid-spring and Edmonton is
still affordable compared
with other major cities
across the nation (to read
more on Edmonton, see our
article
Canadian Boom Town: Edmonton).
Fundamental factors: real
estate cycle and
transportation improvements.
Now, these facts on their own
are impressive, but investors
still have to ask "What does it
mean to me?" How the puzzle fits
together is paramount, and
luckily quite simple: When you
boil down all these facts of
supply and demand and apply them
to a real estate model, you can
drill down deep enough to see
where the economy is going and
how it will influence real
estate prices. You can use this
as your first filter in
selecting an area before moving
ahead with a property purchase.
