Calgary sees a real estate comeback

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One year after the launch of the Alberta is Calling promotional campaign, Calgary is reaping the benefits – and investors are taking notice.

According to City of Calgary estimates, over the last year the city’s household formation rate jumped from 10.4 to 15.6. Because household formation is a key indicator of housing demand, the long-battered multiresidential market in Alberta’s largest city is on a sure way to recovery.

“Investors are finally able to somewhat break even now, as it was almost impossible to sell or rent in 2018-2020,” said Amanda Ku, a Calgary realtor, in an e-mail. “Investors were sitting on either a loss for a vacant unit or a loss for cash flow.”

Indeed, in mid-May, Susana Campos sold her centrally-located two-bedroom, two-bathroom condo, a property she acquired in 2015 but had been unable to sell at a profit – until now.

“I considered selling it last year,” Ms. Campos says. “But then I looked at the market and that was not the right time to do it.”

But as Calgary’s condo market started showing signs of recovery earlier this spring, Ms. Campos seized the opportunity to exit the market without taking a loss. In April, the Calgary Real Estate Board reported a benchmark price of $299,400, an amount just shy from the 2014 peak.

“My husband and I moved out to B.C.,” she says. “Starting a family and moving provinces was just too much. I didn’t want to spend money on the property [and] this was the right time to do it.”

After two weeks in the market, Ms. Campos’s 900-square-foot condo sold for $305,000 – $3,000 more than what she paid in 2015.

As the pressure caused by population growth intensifies in Calgary – so does the interest of out-of-province investors, signalling a shift away from a market dominated by ‘makeshift’ investors such as Ms. Campos.

With a rental vacancy rate below 1 per cent, and regulations that favour landlords, Calgary’s condo market is quickly becoming a hot spot for out-of-province investors, says Natasha Phipps, an investment specialist and realtor in Calgary.

“From an investor’s perspective, if the local legislation in the area is putting their investment at risk because they can’t evict a tenant that’s not paying rent, that’s putting them at risk from their asset protection standpoint.”

Moreover, Calgary’s diversifying economy is adding to its attractiveness, Ms. Phipps says. “Investors in residential real estate will always follow where the people go, because those are our tenants.”

But the interest of investors is growing beyond condos in the resale market. In May, Zonda Urban reported that roughly 60 per cent of the units launched in the first quarter of this year in Calgary are selling to Ontario investors.

According to Jordon Scrinko, founder and managing partner of Precondo, a Toronto-based preconstruction condo brokerage, preconstruction units are “flying” to Toronto investors because Calgary properties offer a more attractive rent-to-price income ratio.

“You can still cash-flow neutral in an investment,” Mr. Scrinko says about Calgary. “Whereas if you buy a one-bedroom in Toronto, you know that your rent isn’t going to cover your mortgage, maintenance fees and property taxes.”

Moreover, multiunit properties, including low-rise apartment buildings located in up-and-coming neighbourhoods such as Bankview and Bowness, are ripe for investment.

“In the multifamily space there’s a lot of outside investment coming from mom-and-pop investors buying their small multiunit building, [and] all the way up to REITs and funds and larger groups that are picking up the larger real estate,” Ms. Phipps says, adding that the ability of landlords to raise rents in underperforming assets is one of the reasons these investors are interested in Alberta properties.

Unlike provinces where rent increases are capped, in Alberta the only limit to rent increases is that they take place once per year – an important consideration for investors.

“In other provinces, if you buy an underperforming building, you could spend years and years trying to get it to current market rates,” Ms. Phipps says.

In addition, because transactions involving larger properties are characterized as commercial, buyers can access financing incentives unavailable in the residential mortgage market, she says, pointing at CMHC insured mortgages.

“Investors who are good at their numbers are seeing the [opportunity] to jump into that commercial space.”

The growing interest in Calgary multiresidential properties is reflected by Altus Group data, which shows that despite a decreased sales volume and higher cap rates, transactions in Calgary’s multiresidential market almost doubled in 2022, relative to the year prior, reaching more than $450-million.

According to Ray Wong, vice-president of data solutions delivery at Altus Group, investor demand for multifamily residential in the last two quarters has remained strong because it represents a consistent return.

“Multiresidential is the most stable asset not just in Calgary but across Canada and North America,” Mr. Wong says. “Everybody needs a place to live.”

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