Investors snap up raw land
October 29, 2007
Winnipeg Free Press
Written by: Murray McNeill
Demand steadily heats up in city; most buyers from out-of-province
WINNIPEG'S grass is starting to look a little greener to land-hungry investors, local real estate industry officials say.
"The Winnipeg land market had been stale for a long time," Baldev Bedi, a sales associate with RE/MAX Executives Realty in Winnipeg, said in an interview.
But with the supply of available land dwindling and prices skyrocketing in faster-growing cities like Vancouver, Calgary and Edmonton, Bedi said out-of-province investors are starting to look at secondary markets like Regina and Winnipeg.
"They're mostly from Alberta and B.C.," Bedi said. "They have the surplus funds and they can make longer-term investments."
But interest isn't limited to outsiders. Bedi said a growing number of local investors is also looking to buy land here with an eye to developing it or sitting on it for a few years in hopes of reselling it for a profit.
He said he and his son, Akash Bedi, have sold seven parcels of agricultural land in the last two years in northwest Winnipeg and West St. Paul. The parcels ranged from 10 to 60 acres in size, with four being purchased by investors from Alberta or British Columbia, and three by locals.
Those numbers may be modest by Calgary or Edmonton standards, but Bedi said they're a big improvement over what local realtors were seeing just five or 10 years ago.
"In the last two years, we've probably seen more sales than we saw in the previous 10," he said. "Eight or 10 years ago, if somebody wanted me to sell land, I could shy away from listing it because it would be a waste of time. But now it's different."
In addition to the seven they've sold, the Bedis have four other parcels for sale in the northwest quadrant -- two on Pipeline Road and one each on McPhillips Street and Oak Point Highway. They also have a 1.9-acre piece of land for sale on south St. Mary's Road.
They said they've received about 150 inquiries about the 8.5-acre parcel on McPhillips. And they've fielded 36 calls within the last 10 days about the St. Mary's land. While the calls on the McPhillips property were from both out-of-province and local buyers, it's been local investors that have been calling about St. Mary's.
Rob Friesen, a sales associate with C.B. Richard Ellis Chartier & Associates, said he's also noticed more out-of-province investors checking out the Winnipeg market.
Friesen said many of them once lived here or know someone who lives here. And they seem to have some knowledge of the market because they usually inquire about the availability of land in south Winnipeg, which has been a hotbed of commercial and residential development.
But there's also interest in other areas in and around the city, he said, including North Main Street, Oak Point Highway and Headingley.
He said he's also received a lot of inquiries about a 21-acre parcel of farmland he has listed for sale on McPhillips.
"We've even turned down a few offers already."
He and the Bedis said just because investors are inquiring, doesn't mean they're buying.
"Everybody still wants to buy something for the cheapest possible price," Friesen said. They don't seem to realize that, just like almost everywhere else in Canada, land prices have been escalating here because of the growing popularity of real estate as an investment vehicle.
He estimated that in the last three years, the average price of raw industrial land in most areas of Winnipeg has jumped from $60,000 to $70,000 an acre to $120,000 to $150,000 an acre. And in a high-demand area like Kenaston Boulevard, it's running as high as $300,000 to $500,000 an acre.
Baldev Bedi said one of the nice things about the northwest is there's still a good supply at affordable prices. He said some raw land just inside the Perimeter Highway recently sold for about $8,000 an acre. One of the drawbacks, however, is the high cost of development. That's because in many cases, the city's water and sewer lines don't extend out to where the land is located, he said. The developer has to shoulder the costs of extending them.
Another turnoff for some investors is that much of the vacant land in the northwest is designated as rural by Plan Winnipeg. To get it rezoned for commercial or residential use requires city council approval, Bedi said, and that makes some investors nervous. Despite those problems, the owners of the 8.5-acre McPhillips property remain hopeful they'll find a buyer after sitting on the property for more than 20 years.
"We were just waiting and waiting for the price to go up," Dalip Singh, one of five friends who bought the land, said in an interview. "If we sell this one, maybe we will buy something else."
Winnipeg's relatively slow growth rate is also a concern for some investors, according to Sheldon Stier, president of Merit Alternative Investments, a Winnipeg-based specialty investment firm that specializes in things like land banking investments.
Stier said that because Winnipeg isn't growing as quickly as cities like Calgary, Toronto or Vancouver, investors often have to sit on raw land for a longer period of time before there's enough demand to warrant developing it. He said most investors are looking for land that can be developed within five years, but in Winnipeg the wait is usually seven to 10 years, or longer.
He said Regina looks more appealing to investors right now because Saskatchewan's resource-rich economy is booming and the population is growing, which is fuelling demand.
But Stier predicts that within five years, Winnipeg will be in a similar position. "I think we're in the early stages of momentum in Manitoba... there are lots of good reasons to stay in Manitoba and lots of good reasons why we're going in the right direction."
murray.mcneill@freepress.mb.ca
The pluses and minuses of owning a parcel of undeveloped land
Looking at buying some raw, undeveloped land as an investment? Here are some risks and benefits to keep in mind, courtesy of Merit Alternative Investments, a Winnipeg specialty investment firm that specializes in things like land banking investments and flow-through shares.
BENEFITS:
- You have a tangible asset backing the value of your investment.
- If the raw land is farmland, lease-back arrangements allow for no further "out-of-pocket" expenses such as property taxes.
- Your investment is not subject to stock market volatility.
- Land values appreciate due to changes in land use, zoning and land entitlements -- things that are not affected by irregular construction costs or labour costs.
- Capital bias. Land banking with many other investors through a limited-partnership structure allows you to purchase larger sections of land as a group of investors, thus having a stronger voice at the municipal planning level.
RISKS:
- Any particular piece of land has its own associated risks that may be unique to that land.
- Time. The rate of development in an area may slow due to economic changes or the competitive nature of the real estate industry. That can prolong the expected period developers may need to acquire the property.
- Changes to government regulations that deal with zoning, taxation and environmental legislation may negatively affect your investment.
- Real property tends to be illiquid. It's not tradable on any organized exchange such as more traditional investments like stocks, bonds or mutual funds.
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