Real Estate - An Industry Perspective

Real property finds harmony with my strongest inclinations in life and business, land ownership sits at the foundations of my cultural mooring. It seems that our culture, that of the European Americans, has ownership in general and especially land ownership as a cultural expression of belonging. There is a propensity in the post modern Canadian culture to minimise ownership, ownership is viewed as a separator from community. My appreciation for the Canadian rural agrarian culture has taught me that community is more effective when composed of a collection of owners, ownership brings with it investiture and as a uniform identifies the person and dictates their role - so does ownership. Ownership by its very nature instills responsible societal conduct, it does because, its retention and value are dependant on society at large. Everyone needs to be an owner, look where you find societal discord, deprivation - they are invariably occurring in the absence of property - oft times because of the absent of property rights. I am most grateful that Canada has as a the keystone of our societal functionality the capacity to own and trade assets, and also grateful for the abundance of real property we have and the opportunity it brings.

The Real Estate industry is a hubbly bub of trends, every sub sector has its own influencing factors, sub sectors are as diverse as the people that inhabit the market. The majority of my contemplation in the real estate space has been; agricultural land or rural land opportunities in general, tourism development land and the full spectrum of residential development. 

There is an exciting arena of participation when one looks at a piece of property, assesses its geophysical values and begins to design the altering of the landscape toward its perceived best use. The land development space puts one in touch with people's interface with environment, each other and how environment can enhance human exchange. There is a propensity in modern society to put people so close they are unable to see each other; how is it, in the modern urban setting we have human densities measured in thousands per acre and people are isolated, and just one generation before, we lived miles apart and were connected - much of the answer lies in the design of our build environment. 

See this links for assessment of rural land opportunity .

http://nthomson2.blogspot.ca/2014/03/the-right-time-of-rural-land-in-bcs.html

http://nthomson2.blogspot.ca/2014/03/real-estate-agriculture-works.html

The rural land space has a number of significant opportunities. If you believe as I do, that the agricultural space with be a place of paced growth for the next thirty years, then you will share my enthusiasm for rural land. If you believe as I do, that urban populations will be seeking the rejuvenation that comes with time in rural / wilderness settings, then you will share my enthusiasm for rural land. I hold a passion for extensive landholdings and their management, they provide a unique lense to the world - one forges their successful management from contemplation of the full spectrum of human enterprise, all the sciences are encountered and human concern is the culmination of effort. 

In the rural land space in my immediate region, there are a number of trends supporting investment. There are a number of properties for sale due to a period of reduced activity in the space, these properties present opportunity as self supporting holdings, as amalgamation opportunities, as developments, as ALR title transfer opportunities, tourism opportunities and as enhanced agricultural enterprises. The assessment, purchase and configuration of viable models for given lands has become a specialty of mine due in large measure, to a real passion I have to own a large land holding. 

Opportunities in the residential development space are abundant, straight subdivision, subdivision and building, multi family, rural acreage, all this space is good, success here weighs heavily on playing the cycles properly. There is a healthy space in several markets for the condominiumization of aged rental apartments, I have found these deals give great margin in the active market and relative to the prevailing new inventory. The time is right for the make ready space due to where we are in the residential real estate cycle, this space really plays nicely with rural land purchase and reconfiguration.   

I am generally optimistic for the real estate categories I am familiar with, there is a lot to be done in this space - and right now is the critical entry point for a lot of them.     

  

    

The Right Time for Rural Land in BC's Interior

There are always junctures that provision an entry point to a market, it maybe that in British Columbia Agricultural land is at that point. There is a large inventory of substantive properties available, this large inventory has suppressed price of late – under 1 % per annum increase in the price since 2008. This flattening of the curve, seemingly at its nadir, has taken place with interest rates at an all-time low. There is a matrix of influencing factors that affects land prices, the ability to buy land and the ability to support that purchase ultimately are the key determinants in price setting.

Agricultural Lands in British Columbia have prices far beyond the ability of agriculture to support, agriculture land quality or capacity affects prices, but in no way accounts for the full value or the floor on land value. In British Columbia only 2.5 percent of the province is arable land, 95% of the province is crown land, couple these realities with the Canadian / Western cultural inclination to want to own land and one realizes that British Columbia ought to be exceeding the national average.

The matrix below indicates the degree to which BC has lagged the balance of the country in property price increases.  

Data - Farm Credit Corp.

The graph below indicates how little agricultural activity affects land prices; only when the orange line is below 1 are fundamental farm factors supporting price, if that is true of US crop land it is likely to be true of BC as well, perhaps more so given this graph focuses on cropping land. 

 Data - USDA

The challenge we face in BC is in having agricultural properties being self-supporting entities. Various farm types are more affected than others, note Beef Cattle operations in the matrix below – it has historically been the case that cattle have failed to carry land ownership cost or to withstand opportunity cost assessment.

Data - Farm Credit Corp.

Presently, throughout the province there is a large inventory of Ranch properties and prices are remaining flat, even, as stated above, in the face of low interest rates.  Throughout the interior, the predominate agricultural activity is ranching and ranching is presently enjoying a relatively good period – improved cattle prices and low interest rates, so one may deduct that the agricultural activity on ranches is less influencing on price than is ancillary factors (as supported by the USDA graph above & FCC quote below). There has been a long evolution in the lumber industry that has reduced labour requirement, thus, stifling local economies, add to that the violent correction in the US housing market (mitigated to some degree by exports to the Chinese market) and the interior has had slow growth for an extended period of time.

“Farm Credit - Agricultural Land Value Report October 2010 - British Columbia was the only province to see a decrease in farmland values by an average of 0.9 per cent over the first six months of 2010. Values were unchanged in the previous reporting period and decreased 0.7 per cent in the first half of 2009.In the first six months of 2010, economic factors largely external to agriculture had the greatest influence on farmland values. Economic uncertainty and the high Canadian dollar hindered investment in many sectors. This, in turn, led to lower demand for land and less expansion of existing operations. Overall, the B.C. land market was relatively flat during the first six months of 2010, with slight decreases in the Abbotsford, Clinton and Cloverdale regions. Sales of land for agriculture purposes were limited in some areas of the province.”

It is the sense of the writer that the US housing market will show mild improvement until about 2018 and at that point it should move into a long and strong growth pattern. This prediction is based on the belief that there was a confluence of cycle ends – major economic cycle, business cycle and technology cycle and well as, the resulting the commodity supper cycle correction or slowing – all of which collided with a grotesques financial deepening to create the down turn in 2008 – the real world economic cycles are now, one by one, running their course. One would anticipate that the inverse of 2008 will be true in 2018 – this thesis is shored up to some degree by severe downturns, 1930 etc., normally taking a decade to recover from.

It seems a prudent time to build an inventory of agricultural land, the inventory of ranches for sale is high, there have been recent sales that have effected downward pressure on the market. Anecdotally, one is noticing a larger number of price reductions occurring on listed properties. So with a large inventory and market picture with positive characteristics; the question then remains, which properties  are best positioned to garner increased value.

It has been established quite clearly that agricultural actives, particularly cattle ranching, are a means by which to maintain lands functionality but offer little support to ownership. One then considers ancillary attributes in the selection criteria; proximity to urban centers, timber assets, tourism attributes, companion enterprise opportunities - attributes that can build returns on the land. There are many such properties available now, one needs only to develop operations that carry the land assets with respect to fair returns and the land appreciation is a clear capital gain.  If one observes the first graph for the period starting 2001 through to 2006 exceptional gains were made; there is every reason to believe that we are approaching a similar cycle – starting in and around 2018.

FCC 2013 Land Value Report

FCC - Historical Land Prices