Interesting times call for investor diligence, not inaction

AACI | Vice President, The Regional Group of Companies Inc.
  • Jun. 28, 2018

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity …”

I can’t begin to guess what Charles Dickens might make of the world today. As a real estate investor, will living through such interesting times prove a curse or a blessing? It all depends on how you chose to look at it.

Columnist John Clark.

Columnist John Clark is Vice President with The Regional Group of Companies Inc.

Let’s take stock.

The U.S. government is headed by a child-bully who likes to push buttons with little idea of what they are connected to. His administration has the gall to act unfairly put upon when America’s trade partners, including close allies, react to tariffs with tariffs of their own. Should it really come as any surprise that an icon of American manufacturing and the nation’s “land of the free” mystique, Harley-Davidson, has decided to take manufacturing to the E.U.?

It only makes good business sense to manufacture product where it will be sold to avoid punitive tariffs and other factors which erode profits. So long as this multi-front trade war continues, more examples will most certainly follow proving U.S. trade policy is likely to do the nation’s economy more harm than good.

Around the world

Meanwhile, Britain’s departure from the E.U. is now assured after the requisite bill passed parliament following 250 hours of acrimonious debate.

This isn’t the last word on the subject. Far from it. The U.K. has no idea where it’s going in relation to Europe and appears to want a divorce as long as conjugal rights are maintained.

The multi-billion-Pound/Euro question now is what proportion of E.U. trade quotas will belong to the U.K? Working this out at the World Trade Organization will not be a smooth process. The economies of countries around the world stand to gain or lose on how those quotas are split up. Many of these stakeholders will head to the WTO to petition for decisions which favour them at the expense of others.

Meanwhile, arriving on the heels of a swell of populism in Poland and Hungary, Italy’s political, economic and financial issues once again dog the outlook for the whole E.U. Russia and China push their own buttons behind the scenes (with the good sense to avoid spilling the beans about it on Twitter).

Offsetting all this are the general strengths of Germany, France, and the Commonwealth sans the U.K.

And here at home

Interest rates in Canada remain low and stable – good news for investors looking to borrow – while the TSX remains volatile.

We will find out next week how Canada continued to fare on international trade in May.

April’s report from Statistics Canada saw our trade deficit cut in half from March, to $1.9 billion. This larger-than-expected decrease in the deficit came as exports rose 1.6 per cent to a record $48.6 billion, boosted by exports of metals and non-metallic mineral products, consumer goods and energy products. We also imported fewer motor vehicles and parts, as well as consumer goods.

Our labour market continues to grow, in terms of the working population and the number of jobs up for grabs. Average hourly wages are up by 3.9 per cent from a year ago, the largest annual increase in almost a decade. The national unemployment rate is holding at a record low 5.8 per cent, while the number of people on the dole for unemployment benefits hit its lowest level in 21 years in April.

The question now is whether tit-for-tat tariffs between Canada and the U.S. over aluminum, steel and other goods will knock the wind out of our sails this summer.

Carbon pricing and pot

At the local level, housing resales in Ottawa continue at a steady pace. Toronto housing prices appear to be stabilizing. Vancouver is still distorted, with housing beyond the means of most people who live there. Calgary is in recovery mode. Montreal and Edmonton seem to be doing OK.

In other words, no reason to push panic buttons right now in Canada’s residential markets.

We also have a new Progressive Conservative government in Ontario. A good time to just sit back on the patio and see how things shake out. The province still needs lots of long-term investment in infrastructure. Carbon pricing remains an issue that may affect markets, with vocal arguments for and against after a year in operation.

On the other hand, Canada’s provinces and territories have a new stream of revenue coming October 17 from legalized cannabis. This might be a timely boon for Ontario as it wrestles to address its deficit and make the numbers add up on the PCs’ campaign promises.

What’s the moral of all this?

Be well informed about the exposure of your assets and your prospects for investment to world events and world trade.  There is no reason to sit still – Canada’s economy in general is moving along quite well. This, however, might change in the near future. The potential impact of current events needs to be considered more carefully than may have been the case a year ago.

As a commercial real estate investor, also remember value is a derivative of the business that can take place in the building. In making investment decisions, you must consider the market fundamentals for the type of business to which a property lends itself. 

Summer usually is a time to relax. Perhaps not this year.

To discuss this or any valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

Read more

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