Real Estate Fundamentals in Action: Alberta

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 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.

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Todd Millar is the president and owner of Glenn Simon Inc., a wealth building real estate joint venture investment company focused on the Edmonton area resale housing market. Millar invests in the Edmonton area personally and on behalf of his clients.


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