Canadian Property Markets: An American Investor’s Best Buddy

canada property markets

Now Is The Time To Buy Canadian

It was an ongoing joke throughout the presidential campaign: Americans wanting to escape the toxic political situation and move to Canada. Cape Breton, a small town on Canada’s east coast, even based an advertising campaign on it with instant viral success.

Then, for many, it stopped being a joke when they woke up Nov. 9.

Google Trends showed a massive spike in searches for “how to move to Canada” and related queries following the election results. So many people visited the Canadian Immigration website that it crashed, and this wasn’t the first time in this election cycle that this happened. The page also crashed after March’s Super Tuesday primary results.

Whether the election results produce any significant increase in U.S. immigration to Canada will take time to be seen. Already, many of the celebrities who had previously threatened leaving have fessed up that they didn’t actually mean it.

The “True North” Remains Strong And Free

The idea of escaping the United States to the Great White North is nothing new. Loyalists fleeing during the U.S. Revolutionary War, escaped slaves joining them via the Underground Railway, and war resisters crossing the border during the Vietnam War—Canada has provided a beacon of freedom for hundreds of thousands of Americans over the years. And it still does today.

More recently, the impetus for moving to Canada became more political. Much like it has this year, after President Bush’s reelection in 2004, Canada’s immigration website saw six times its average traffic. By 2006, U.S. immigration to Canada was at a 30-year high.

And after President Obama’s election in 2008 and reelection in 2012, many conservatives stated that they would move to Canada as a result.

Canada, with its socialized health care (and longer life expectancies), rigid gun laws (and lower crime rates), long and widespread acceptance of gay marriage, and soon-to-be legalized marijuana industry, is the new “Land of the Free,” according to one writer for Foreign Policy. Another writer, one from The Economist, made the case that Canada’s commitment to immigration and free trade makes it a champion of liberty among other Western nations. And those assessments were made before the election.

Freedom is an important motivator for those considering a move to Canada. Freedom House, an NGO charged with measuring political and civil freedoms worldwide, gives Canada a near perfect score of 99 out of 100. The United States scores 90—one point lower than Puerto Rico.

Canada Offers A Big Advantage For U.S. Dollar Holders Of Any Political Persuasion

Aside from the personal and political reasons that make Canada so appealing, there’s a financial appeal to Canada, too. And this may, in fact, be the biggest draw of all.

Thanks to several factors that have played out over the past few years, the current exchange rate between the U.S. and Canadian dollars heavily favors the U.S. dollar. At CA$1.33 per US$1, U.S. dollar holders enjoy great savings on the cost of everything in Canada, including real estate.

And thanks to divergent monetary policy—with the Canadian central bank holding rates low and even considering cutting them, while the U.S. feds are finally beginning to raise theirs—the exchange-rate benefits for U.S. dollar holders should continue to hold well into 2017. That is, so long as the U.S. economy maintains its slow but steady recovery.

As long as the exchange rate stays where it is, U.S. dollar holders would be wise to look north in making real estate investments, even if it’s not part of an escape plan.

While an investment in Canadian real estate won’t grant you easier access to legal residency, it will provide investors some diversification outside of the U.S. dollar. For as great as the exchange rate is now, over the longer term, the nations’ two currencies tend to track closer to par. Eventually, they’ll be back there, and when they are, the current saving opportunity from the beneficial exchange rate will be gone.

And those who purchased at today’s rates will have made a handsome profit on the currency alone.

A Few Inflated Canadian Markets Are Skewing Canada’s Property Picture

It’s important to remember that Canada is a massive country with many different real estate markets. While news outlets have been clamoring about an imminent real estate bubble burst in Canada for the past six years, the main focus of their attention has been on the big-city markets of Toronto and Vancouver, where prices have grown out of control. These inflated markets skew the national data, and news reporting and analysis are often clouded by these few cities.

After more than a decade of runaway growth, Swiss bank UBS has noted that Vancouver’s housing market is one of the world’s least affordable and has the highest risk of collapse. Prices for the final months of 2016 were up nearly 20% year-over-year from 2015. The average property price is about CA$1 million (US$752k), and the average for a single-detached house is even more. The market became so overheated that the British Columbian government stepped in this August and instituted a 15% foreign-buyer tax. The market has begun to show signs of cooling, with month-to-month decreases, but most buyers will still be priced out of this market.

While Vancouver’s market is starting to show signs of slowdown, Toronto—Canada’s other booming, big-city market—continues booming. And while the city also saw nearly 20% y-o-y growth at the end of 2016, there are no month-to-month decreases as there are in Vancouver, nor any government mitigation as seen in the B.C. foreign-buyer tax. Still, with an average home price close to CA$800,000, Toronto is another market where it’ll take a small fortune just to buy a small condo.

Like Vancouver, Toronto is not worth it, especially given the risk that these are Canada’s two most bubble-like markets.

But There Are Great Values Outside Of Canada’s Over-Inflated Markets

Meanwhile, plenty of Canadian markets remain modestly priced, without getting much mainstream coverage.

In Montréal for example, home prices are a fraction of what they are in Toronto and Vancouver, and you still get the benefit of urban living. The average price for a home in Montréal is about CA$350,000, or US$263,000 (and no, you won’t be run out of town by francophone separatists). In the nation’s capital, Ottawa, the average home price is about the same. Both cities are big cities, but without the big-city prices.

If you’re not as interested in the big cities, check out Canada’s Maritime Provinces on the east coast. Surrounded by history, you could live like Anne of Green Gables in an oceanside cottage or surrounded by history in Nova Scotia, whose colonial history dates back to the early 17th century. The average price of a home in the quaint province of Prince Edward Island is a bargain at CA$165,000 (US$124,000). New Brunswick is even lower, at under CA$160,000. And in Nova Scotia, it’s just a bit higher, at just under CA$220,000 (US$165,400).

If you’re interested in living or investing in Canada, these markets are still a good value, especially at today’s exchange rates. We’ll zero in on some of the best markets starting next week.

Don’t Be Left Out In The Cold

The opportunity here for Americans is in the beneficial currency exchange between the U.S. and Canadian dollars. If the currencies return to nearly equal value, U.S. dollar holders will lose close to a quarter of their current buying power.

But those who purchase at today’s rates will stand to make a good profit on the currency, aside from any real estate appreciation.

Luckily, the U.S. dollar is expected to hold the advantage over its Canadian counterpart for some time. But that’s not all that could close this window of opportunity. We could see more foreign-buyer taxes as in Vancouver, or the exchange rates could swing suddenly for some now-unforeseen reason.

Canada remains a bastion of freedom for both investors and immigrants, welcoming those who plan to follow through on their whimsical, pre-election relocation promises, as well as anyone seeking a high quality of life at today’s low cost.

Matt Chilliak
For Overseas Property Alert

Editor’s Note: The first time I saw a wave of presidential-election refugees was after the 2004 election. I referred to them as “Bush refugees,” and they turned up in large numbers at retire-overseas events.

But they were easily outnumbered by the “Obama refugees” in 2008, which were once again outdone by the Obama refugees of 2012. Interestingly, this brought a stronger conservative element to many expat communities… even those in socialist countries.

Lee Harrison
Editor, Overseas Property Alert

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Letters To The Editor

Hi Lee,

Could you give me advice on good Internet sites to find properties in Santa Marta, Colombia? I’m looking for a fixer upper under US$70,000.

Thank you!

Kathy

The agent I work with is Efraim Negrette, and you can contact him via his Santa Marta property website (http://www.miapartamentoensantamarta.com/). Efraim’s English is limited, but even if you don’t speak Spanish, you should check out his properties and write to him in English if you’re interested.

For an English speaker, try Buy Colombia Realty (http://www.buycolombiarealty.com/). Write to my friend Mauricio Jaimes. He’s not in Santa Marta, but he lists a lot of Efraim’s properties.

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Lee,

I am in the process of purchasing apartments currently under construction in Cartagena. I lived there for almost 4 years, but just purchased the properties this summer as I was moving for work.

Should I hire a local lawyer to complete the sale? Are you aware of any good rental management companies in the area?

Curtrice

Yes, you should definitely hire a local lawyer. I’d suggest you call Ricardo Vélez-Beneditti, of Vélez Benedetti Abogados (https://www.cartagenacaribe.com/abogados/velezbenedetti/index.htm). They’re located just outside the wall by the clock tower, in the Banco Popular building (Office 1302).

Ricardo’s wife, Marcela Carvajales, is also a member of the firm. Both are long-time, well-connected attorneys who speak excellent English.

For property management, our friends at First American Realty Medellín have an office with a strong property management team in Cartagena. Contact Andrea Ochoa at andrea@farinternational.com, or call her at +57 350-439-1958 in Cartagena, or on her U.S. line at 1 (929) 227-4081.

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Hi, Lee!

I was born and raised in Argentina, and I have to comment on your statement: “In Argentina, most wines are produced in the western valleys, from Mendoza stretching north through La Rioja and up to Tucumán. Argentina is best known for its reds.”

You are right that wine is produced in the western areas. But:

  • Patagonian wines, although not easily available outside Argentina, are truly outstanding. South of Mendoza, the provinces of Neuquen and Rio Negro have developed immensely as wine-producing areas, and I would suggest that next time you are in Argentina, you try those wines.
  • North of Tucuman, mostly in Salta province, and particularly around Cafayate, you find another area of exceptional wines, including but not limited to the white and fruity Torrontés, which is widely available in North America.

Keep up the good work!

Edmond

Have a question? You can write to Lee (or Matt) here.

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