There are a number of factors making Canada’s real estate market one of a somewhat shaky foundation. A lack of quality land and development opportunities, rising government fees and costs, Alberta’s slacking economy, mounting household debt and a struggling retail sector could all spell bad news for Canada’s real estate industry, making quality risk management increasingly important.
Some of the challenges mentioned above could eventually lead to insolvency or restructuring, however good risk management services, such as those offered by Arthur J. Gallagher Canada Limited, can ensure companies never have to deal with such a turn of events.
Risk Management
Risk management in the Canadian real estate sector is all about discovering and understanding current and future risks. They must then take necessary steps to avoid/handle those risks. More importantly, good risk management firms can also help companies capitalize on downturns in the market that may temporarily deflate real estate prices.
Apart from economic factors, a number of external factors can also negatively affect a real estate company in today’s market. Environmental laws, which are becoming increasingly common in Canada, could quickly hike the development costs of a project or even derail it entirely. Also, overdevelopment could spawn a lack of demand, or a natural disaster could strike and interrupt the company’s business. These issues are constant, but should still be considered by risk management firms even amid a more pressing potential factors such as a fluctuating and unpredictable real estate market.
Several other emerging factors are changing the Canadian real estate landscape as well, as highlighted in a market deep dive by Canadian financial consulting firm MNP LLC. The firm says it is seeing an increasing number of court documents that show condominium developments outside of major markets like Toronto are not up to snuff. Additionally, MNP says rising demand for seniors’ homes and major changes in the retail sector brought on by advancements such as online shopping could reshape the real estate market, along with inflated land values brought on by land syndication.
Canadian Market Concerns
Canadians curious how a real estate market can take a rather sudden turn for the worse might look to Vancouver. The market was once Canada’s strongest and had the highest average price of the transaction, propelled by low interest rates, foreign investment from China and consumers assuming the prices would continue to rise, David LePoidevin of investment advisor firm LePoidevin Group told The Vancouver Sun in July.
“When you combine all three of those, it’s your classic bubble,” he said. “Right now, the numbers are so outstretched … that once it begins to turn, it could get nasty.”
LePoidevin believes Vancouver’s real estate market has now passed its prime and his company has avoided investments in Canadian real estate accordingly. Right now he prefers to work with the U.S. dollar, anticipating Canada’s real estate downturn to have a negative effect on the Canadian dollar.
With current and emerging factors set to remold Canada’s real estate market, companies within the sector should be mindful of some of these issues before they cause major financial problems for them. Risk management firms can help them fully understand the financial risks that come along with today’s real estate market, prioritize them to develop plans in order to mitigate or avoid them.
