Slow Burn
There is no other way to describe it. The sheer amount of listings still piled up is doing a slow burn through this incredible log jam of properties available in Calgary and area.
This is the third month in a row where over 4,000 properties (single family and condos combined) have been listed in Calgary while only approximately 1,500 per month have been sold. May and June had sales of almost 3,000 properties, which are typical as they are very busy sales months, helping to move through inventory.
As the properties listed and the slower sales months of the fall selling cycle fail to eat away at the built up inventory, we are seeing the expected price increases being pushed back further and further. Some Real Estate experts are now forecasting any of the increases in value to occur as late as early spring.
The good news (if you currently are not selling property), is that now is an excellent buying time. So if you are able to purchase now, by March or April increases of 10-15% in value may not be out of the question.
If the market continues to remain flat until the spring, we will see some very quick and sudden price jumps occurring which will catch many people off guard. All the fundamentals are still in place, people are continuing to move to Alberta and if investors are patient they will see the rewards come to them over time.
Properties that are priced correctly still will sell fast. For example we listed a property last Friday and it sold in one day.
The Royalty Review
In case you missed it, the Provincial Government appointed Royalty Review board believes the Alberta Government is getting shorted on the royalties that Oil and Gas companies currently pay in the province. The Government, and in turn the provincial citizens, could be losing out on as much as $2 billion dollars of revenue every year due to low Royalty rates.
Just imagine what the Government could do with this extra money each year! They may be able to form six or seven new review boards that could look into other government programs that may be under-taxed. This additional increased revenue would then be able to fund even more reviews and more boards and be a virtual money making machine!
Of course, when we are talking about royalties, we have to remember how this will affect big business and the oil companies. After all, they have been hard up for the last little while. EnCana is only expecting a $480 million profit for the last six months of the year. How is a large company like that going to exist on less than half a billion dollars profit?
In all seriousness, it is a very big issue as it concerns billions of visible dollars and even billions more of virtual dollars. There is much at stake for the government coffers and the potential profits from the oil companies, but the reciprocal money is what really affects everyone else in the province.
This reciprocal money is the money spent building things like EnCana’s new office tower and is paid to the workers, the contracting companies, and everyone else associated. In Fort McMurray, this flows down to the workers in the plants, the people working in the grocery stores who supply the plant workers, and the folk in Tim Horton’s who pour the coffee for the workers.
If the government does decide to do the full royalty increase, this will cause the oil companies to tighten their purse strings for a while at least. Several may even temporarily shut down projects to see how this all shakes out. This could mean layoffs for people directly associated with the projects and this would flow down the line.
If people are not working, they have less disposable money to spend on extra groceries, coffee, vehicles, and luxury items. In turn, it lowers the need for staff at locations that provide these goods and leads to further layoffs, or reduced hours. In Fort McMurray if only 1,000 people get laid off this could be over $9,000,000 of income tax money alone taken away from the government.
More importantly if a project gets pushed back for a year, that could involve as many as 2,500 workers on site and another 7,500 support workers, this could turn into approximately $90,000,000 of income tax lost if not much more. We haven’t even taken into account the future loss of royalty money which could quickly add up.
Would it be more important to grab the cash now, when things are rosy for everyone, and possibly kill the golden goose or at least wound it badly? Or, do we continue on status quo with the government continuing to rake in huge windfalls already from our energy resources and burgeoning economy?
This will be a tough decision for the government to make, but perhaps the true solution lies in the middle. Maybe raise the royalties a bit, so no one loses? Let me know your thoughts and what you think may happen I enjoy hearing from everyone!
In Closing
It’s recently been brought to my attention that I don’t know my purpose in life. At its simplest level, it’s to be a good and fair person. Now I understand it’s unlikely I will discover the cure for cancer or find the fountain of youth, yet there has to be more than just being a successful Real Estate investor.
Do you know what your purpose in life is? I would love to hear some of your thoughts on this.
Here is hoping you have a fantastic Autumn, and you are getting to enjoy some of the great weather we are having!
Regards,
Bill & Karen Biko
KatSid Housez Inc.
www.housez.ca
Calgary, Alberta
Tel: 403.870.4663
Fax: 403.203.1753
