In one of my recent articles on real estate investing, I talked about the importance of reading through the lines when it comes to analyzing statistical reports. Generally speaking, statistics, even those coming from governmental sources, are often only statistics based on a set of juxtaposed numbers. While very helpful in giving us an indication of what's going on, no statistical report, I repeat: NO STATISTICAL REPORT should be judged as the end all, be all, particularly the case when it comes to emerging markets.
The ability to read between the lines when it comes to these reports is often what separates the wildly successful investor from the lukewarm one. If you can perform real due diligence to discover the meaning behind those numbers, whether they will have a positive or negative effect on your purchase depending on the product and exit strategy, you will have developed a keen understanding of the forces that pull and push at a market and determine where the next property boom will happen.
Case in point: the recent report issued from CMHC on the regional real estate market in Saint John, New Brunswick. Let's take a little stroll through this document to discover its true message, from an investor's point of view.
CMHC: "The energy sector, which is mainly concentrated in the Saint John area, saw minimal growth in 2009, due in part to low natural gas prices and the decision not to move ahead with some large-scale capital projects. Although the largest economic impact was undoubtedly felt in the port city in 2009, other areas of the province were also affected."
Point #1: While this is true in general, it does not effect the market as a whole. Taking our current project in Saint John as an example, the Royal Parkway Condominiums is situated in Millidgeville, an upper middle class section of Saint John that has easily avoided the negative downfalls and market bruising of the mentioned energy project's slowdown.
Point #2: There is no mention of the major infrastructure investment by the province and what incredible bounty this will inevitably bring. In 2009, we saw completion of the $1 billion LNG terminal and the on going $1.5 billion refurbishment of the Point Lepreau nuclear power station. In 2010, natural gas prices will be up significantly. Power sales will again increase once the Point Lepreau Nuclear Plant is operational again. And while the new oil refinery was put on hold, the Province of New Brunswick has entered into a memorandum of understanding with AREVA, the French nuclear developer to investigate the feasibility of developing a 2nd nuclear reactor. Make no mistake - these are exciting times in Saint John!
CMHC: "[...] in-migration has been muted in Saint John during the past decade, a trend which is not expected to change in 2010. [...] Meanwhile, upward pressure on the vacancy rate should be limited in Saint John, due to negligible in-migration. Expect the vacancy rate to range between 3.5 and 4.0 per cent in both 2010 and 2011."
Point #3: This particular statistic is a reflection of the older properties on the market, not properties that have been built in the last 10 years. In Saint John, properties that were built in the last decade are in very high demand.
CMHC: "Although the overall vacancy rate was higher in 2009, it did not increase for all bedroom types. The vacancy rate for two bedroom units, which are the most popular in the Saint John area, was up from 2.8 per cent last year to 3.7 per cent in 2009."
Point #4: Again, this statistic is a reflection of the older properties on the market, not those built in the last decade. And while it is a temporarily unsettling statistic on a total provincial level, it does not take into account niche neighborhoods or locations, such as the location of the Royal Parkway Condominium project. This project is already rented nearly to capacity by an A+ tenant (the Saint John Regional Hospital next door is leasing these units for their doctors) on a 3 year renewable lease. This particular location alone practically ensures security and stability, but when you factor in the soon-to-be-tasted results of all the private and provincial investment... it's a perfect opportunity to buy into an emerging market with very, VERY little risk.
CMHC: "However, market conditions in the resale market continue to benefit potential home buyers, thereby enticing some renters to make the switch to homeownership and contributing to the higher vacancy rate in the Saint John CMA."
Point #5: I'm afraid this statistic doesn't tell the whole story, either. As interest rates will rise over the next coming months, it is easy to predict a decrease in homeownership, and, consequently, an increased demand for rental units. Higher interest rates also mean that people are less likely to buy homes and more likely to stay in their current apartments, as loans become harder to pay.
Point #6: This statistic yet again takes a detrimentally wide view, ignoring the micro-neighborhoods and market demographics that are not effected by this measurement. It assumes that Saint John renters are doing so based strictly because of affordability. When you have an ideal upper-middle class location such as that of the Royal Parkway Condominiums, this is not a case at all. Undoubtedly these tenants can afford to purchase a single family home. In our case, the tenant is renting because of the location, location, location - 600 metres from the Saint John Regional Hospital and equidistant from the University of New Brunswick campus. Even if the A+ lease did not already exist, there certainly would not be any shortage of tenants. You just can't beat it.
So what's the moral of the story? No one likes reading statistical data. But if you want to be successful in real estate investment, you not only have to be able to read it, you have to be able to read between the lines.
As they say, one man's oyster is another man's pearl.
Born in Corsica, Marie left France at the age of 20 to obtain her MBA from San Francisco State University in the United States. She began her international career as Director of Business Development for the Danzas International Group. After 8 years, Marie took a sabbatical from the corporate world to pursue her passion of "Feng Shui", which she then taught until 2005 and still practices today.
Unable to stay away for long, Marie returned to the business world in 2005 with an invigorating strength and balance to form her own company focused on the acquisition of investment properties worldwide. Expanding this venture, she then created a commercial financing division to meet the needs of developers seeking private financing, as well as a marketing branch to assist developers in better promoting their projects to international investors.
Content with her success and ready to give back to the real estate community and investors that have supported her career, Marie has now created her own personal web alias, The Zen Investor, to help ease the often harsh and unforgiving process necessary to be successful in property investment. She is dedicated to helping others follow their path to financial freedom through the power of group purchasing and passive income that property investment has to offer.
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