I have heard it said that time is what stops everything from happening all at once! I must admit however, that last year, it felt like everything happened all at once. A busy year to say the least, and the truth is that 2006 feels like it starting off in a very similar vein!
The real estate markets in the Okanagan are still struggling with a low amount of inventory for sale and insatiable amounts of interest from clients in the regions product offerings. I would not be surprised to see another record breaking year in the Okanagan, although Canadian real estate forecasts are for a softer year overall.
Next month we plan to bring you some detailed updates on Lakeshore properties. It is a segment of the market that, to some is already priced somewhere in the stratosphere, yet to the consumers of Lakeshore property is still good value for money. We will try and give you some insight into that mindset and help you understand how that affects the rest of the market place.
With regards to this year, don't expect interest rate hikes to slow down the enthusiasm too much. It may serve to reduce the amount of people moving up in the local market, although increased equity in their present properties has built up to the point where they may feel more comfortable making the move. The big news continues to be the out of town market. I am personally with investors in California, Arizona and the UK, who are looking at the Okanagan very carefully and have already concluded that they want to be in this market place. The only question is what segment, and how diverse they want their investments to be.
This kind of investment can be a great export program for the local region. Whilst it brings in dollars from somewhere else, and provides a "perceived" pressure for the municipal councils to deal with, the truth is that it often creates a "shadow" population that has a low drain on services that are provided such as wastewater treatment and garbage collection, Whilst this can be a net benefit to the community, it can also change a community and lead to streets with a large majority of absentee homeowners Therefore, the real challenge for the Okanagan municipalities, is to manage growth whilst preserving integral community values.
One segment of the market place that is showing a healthy amount of available inventory is the ski hill condo sector. Current listings at Big White for example give a healthy amount of choice for the potential investor. Whilst this may alarm some of you who own a condo at Big White, I believe it is a natural evolution in the sales cycle. Typically, many of the condo programs are sold on a "cash flow return" basis, which brings buyers flooding into the gates on a pre-sales program. However, the harsh reality is that many units like this do not cash flow positively.
After the sales program has completed, consumers will then often find that the units are far from cash flow positive, may not reach projected net returns which often requires them to sell off their inventory. As this is in process the rental management companies are busy marketing the units and usually 3-4 years into the program will reach stable occupancies with predictable cash flow, still not positive overall but nonetheless a good investment for the right investor. The problem often stems from buying the condo for the wrong reasons, believing rental pro-forma's without further research and not understanding where the true upside is to purchasing rental condo's. It should also be remembered that inventory at ski hills is "overbuilt" in the early phase, which satisfies the needs of the ski hill operator who is looking for enough beds to cope with peak demands, but inherently softens overall occupancies for the ski season. This situation will correct itself in the short term and ski hill inventory will become increasingly popular as we head into a provincial winter Olympic program in 2010! The recent success of the launch of a new subdivision at Mt. Baldy in Oliver indicates the depth of the market in this segment.
We will see what the OMREB board stats have to report with regards to conclusive January figures very soon, what is a certain reality, is that excessive demand still exists for lakeshore and high quality lake-view condo's with rental management programs. Whilst very few new lakeshore condo programs are on the horizon for the 2006 year, 2004/2005 successes are still being built and will no doubt ensure that we start to see a healthy re-sales market start to mature in the near future. There is currently a waiting list in my office of folks looking to get in on the next launch of a new project in the Okanagan. Whilst not much is projected for 2006 launches, some projects are certainly in a mature planning phase and I believe in 2007 you will see some of the most exciting launches of developments in the Okanagan yet. With current values being where they are, I would expect to see a larger inventory of fractional real estate occur here and an increasing amount of interest in the "Private Residence Club" or "Private Equity Club" concept designed for the affluent individual that may have collected enough second homes and is now simply craving excessive service and quality. I'll dedicate a column to this type of real estate in the spring and show some examples of successes in other regions.
Adding to an already excited market is a strengthening BC Economy and a newly elected Federal Conservative government offering to stimulate the economy with tax cuts and an ultimate deferral of capital gains tax which will play very well into the hands of real estate investors and increase the amount of speculative investment in the region. When the Conservatives follow through on the tax changes, I would expect to see a large shift of capital from RRSP programs into real estate investment programs, which will once again create even higher interest in this region.
Three more areas I would like to explore in future columns are:
1. "Seniors housing", a sector that I think will accelerate in the near future, with some unique niche concepts.
2. Manufactured housing, an alternative that could ease the concerns that will arise surrounding build time and quality as everyone forecasts labour shortages in the Western Provinces, some of which are already being experienced, and finally,
3. Offshore real estate investing, where to go with the profits you may have made in your Kelowna portfolio! Watch this space.
What is for sure, is that we live in one of the most exciting regions in the World, a beautiful region with high quality services, sound planning principles and a caring populous. Remember, the reason people like it here, is because of what we have. We need to care for the "goose that lays the golden eggs!"
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