Thursday, October 20, 2011

In Toronto, 70% of buyers in an overbuild condo market are speculators

I have been thinking lately - truly painful for me :)

News papers mention an overbuild Toronto condominium market where more than twice the units needed for population growth are flooding the markets and 70% of buyers are 'investors' (I say speculators). Vancouver, supported by overseas investors is in a similar situation with housing prices so expensive most 'locals' can't afford to buy.

The current stock market seems akin to the 1970s. So retiring baby boomers may not be able to get the returns to finance their golden years. Neither will they do so when lending their money to the government - in fact they may loose that money if said governments default. Where would they go?

With liberals and NDP in charge in Ontario and consumer demand low; the glimmer for more economic growth lies in a recovering U.S. housing market which appears to be at least a year away.

The only bright spots with better demographics, an exploding project portfolio ranging from up-graders to pipelines is the West. Yes, the BRIC economies may slow down but I don't think their growth will go down a lot. BRIC growth may moderate even more so with the world addressing the extreme savings and trade imbalances. So demand for commodities may grow less but I dont see it going down.

So where can investors, especially investing babyboomers, get the most bang for their buck? I would say in Western Canadian real estate - in particular in Alberta. When once again looking at the 1970s, I would expect that after adjusting for the building excesses of 2005-2007, Alberta real estate will appreciate with Alberta's inflation rate (I guess 3 to 4%) . Also, rents are starting to improve while low interest rates are here to stay for the foreseeable future. We're moving into real estate spring!

So, let those Toronto speculators lose their shirts on Condo's while we invest happily in Alberta rental real estate which will likely outperform everything else. Just in case I am wrong - I've been that before, make sure you are diversified!

There are still lots of dividend earning business for sale on the stockmarket paying 3 to 5% tax advantaged dividend while outperforming the overall market. Buy also Dow Jones companies, or better the entire index (ETFs). We're all forgetting that those best-in-class companies operate worldwide and are only partly dependant on the U.S. economy. Their current profits are once again surpising the doom & gloomers on the upside

To optimize your ROI use leverage in real estate --- NOT in the stock market. On the other hand, to optimize cashflow reduce debt. Short term cash,or readily available cash, is once again king. Leave Toronto Condos to the speculators.

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