Real Estate Investing in Newfoundland and Labrador

Real Estate Investing in Newfoundland and Labrador

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Smart investors know that any “brilliant” investing moment or decision started months or years or even decades ago. They know that they were laying the groundwork for these eureka moments via thorough research and steadfast analysis. Any investor in any field should know as much as they can about markets they’d like to target, and this becomes especially true when it comes to real estate. Canadian real estate investors should understand that the markets that they target are just as important as properties they wish to purchase or alterations they wish to make to those properties. Let’s now take a look at one specific province to better understand what opportunity may lay there – Newfoundland and Labrador.

Table of Contents - Real Estate Investing in Newfoundland and Labrador

Newfoundland and Labrador: New name, new opportunities

Situated at the far eastern end of Canada, the province of Newfoundland and Labrador is one of the country’s smaller areas. It is ranked 10th out of the 13 provinces when it comes to the area and contains just a bit over 4 percent of Canada’s overall population. Originally named just “Newfoundland”, the province’s name was changed in 2001 to better unify the two landmasses of Newfoundland and Labrador, separated by the Strait of Belle Isle, which is just nine miles wide at its narrowest. Newfoundland was also an independent dominion of the United Kingdom until 1933 when economic devastation and social fallout from World War I caused it to join Canada.

The province’s unique name of is a combination of Henry VII commenting on it as the “New Founde Launde” when John Cabot became one of the first Europeans to land there, while the “Labrador” part is less certain – it could be based off the name of an explorer, or from “llavrador,” the Portuguese word for a landowner. The province still boasts a healthy Aboriginal population, making up around 9 percent of the province’s population and mostly identifying as First Nations, Métis or Inuk (Inuit). The province is a beautiful place full of diverse and lively people and investing in Newfoundland and Labrador should be an attractive option for most real estate investors.

It can also be noted here that the province takes its sports very seriously. Ice hockey, as in all of Canada, is extremely popular. Junior teams dot the province, contributing many players to the National Hockey League, and the Newfoundland Growlers brought ECHL hockey to the province in 2018.

Key demographics of Newfoundland and Labrador

Investing in Newfoundland and Labrador should also include a thorough understanding of its peoples and culture. As was previously discussed, Newfoundland and Labrador is the home of a significant Aboriginal population, and the population maintains a strong presence in the government, culture and heritage of the area. Also, the province boasts high percentages of people of English, Irish, Scottish and French descent, as well as many other nationalities from across Europe, Asia, Oceania and the rest of the world.

The province also boasts a population of around 8,000 immigrants from other countries, with most arriving from the United Kingdom or the United States. Unfortunately, Newfoundland and Labrador get the short end of the stick when it comes to interprovincial migration. Many young Newfoundlanders have left the province in recent years in search of better economic opportunities, leading to a net decline in interprovincial migration over the last decade or so. This statistic tends to ebb and flow, however, so investing in Newfoundland and Labrador could still very well represent a stellar opportunity for the right investor.

The economy of Newfoundland and Labrador

Investing in Newfoundland and Labrador of course requires a solid understanding of its economic fundamentals, challenges and opportunities. The region had experienced a depressed economy for many years, especially following the collapse of the cod industry, but sustained and thorough investment in the province has led to several economic turnarounds. Service industries such as financial services and health care are the dominant economic driver, while industries like resource extraction (mining and oil production) and printing are also large employers of province residents.

Newfoundland and Labrador still maintain a hold on traditional industries however, with 20,000 people still employed by a fishing industry that is among the country’s bigger producers of cod, haddock, herring, shrimp, crabs, clams and a host of other fish. Aquaculture is starting to get a toehold here as well, taking over for more labour-intensive and inefficient traditional fishing practices while creating a sustainable source of seafood for all Canadians.

Finally, agriculture and tourism play a big role in the region’s economy. The province’s beautiful sights and natural beauty draw hundreds of thousands of visitors every year, and they spend millions of dollars. Investing in Newfoundland and Labrador should include an understanding of these economic drivers, particularly the tourism aspect, as the proliferation of rental properties (especially short-term ones) could be worth looking into further.

Income statistics of Newfoundland and Labrador

Going hand in hand with the economic outlook for any province or area is an understanding of the income statistics of its residents. Newfoundland and Labrador are interesting in this sense because their per capita GDP closely mirrors the Canadian average, as does its market income per capita. Investing in Newfoundland and Labrador means investing in a province that represents Canada as a whole in some ways. When it comes to median annual family income, Newfoundland and Labrador are closer to the bottom than the top of the charts. The province has a median annual family income of around $80,000 as of 2017, putting it just in the bottom half of provinces.

Investing in Newfoundland and Labrador likely means that you are tackling a challenging proposition. In some ways, the province has provided economic opportunity for many of its people, especially via the extraction industries like oil and gas production. However, it is not an exceedingly wealthy place, so if you have stars in your eyes about renting out luxury condos or expansive (and expensive) pieces of land to the rich and famous, then investing in Newfoundland and Labrador could potentially not be the right fit for your portfolio.

The Newfoundland and Labrador real estate market: an overview

Investing in Newfoundland and Labrador also requires a substantial understanding of the province’s real estate market. The COVID-19 pandemic has contributed here, as with virtually all other provinces and areas of the world, to a significant slowdown in the real estate market. Total sales in the province in April 2020 declined by over 19 percent from the same period in April 2019, and these numbers might not pick up for a while. There could be some opportunity here for the right investor, however.

If you do your homework, investing in Newfoundland and Labrador could prove to be advantageous so long as you’re staying safe and doing your due diligence on all potential purchases. During the period noted above, home prices in April 2020 were, on average, about 1.6 percent lower than they were in April 2019, with an April 2020 average of around $236,000. This keeps pace with the national average, if not slightly surpassing it, which saw a decline of about 1.3 percent in April 2020 as compared to during April 2019. Additionally, the number of listings saw a significant decline of around 64 percent during the month-long periods.

A cooled-down market means that the potential for value is there for many investors. Right now, investing in Newfoundland and Labrador means investing in a market that gives the edge to the buyer - even with the significantly lower inventory, there are far fewer buyers on the market right now, contributing to lower prices that could give you the chance to “buy low, sell high” when it comes to properties in the province. If you’re looking to acquire a rental property, for example, you might find a motivated seller who is not quite finding the pool of buyers that they were hoping to during normal times. In that sense, you have the potential to get a good deal on the property by presenting a qualified and thorough offer that the seller will have to take seriously due to the diminished selling prospects.

Market Snapshot: St. John’s

Far and away from the biggest city in Newfoundland and Labrador, St. John’s boasts around 20 percent of the province’s population, and the larger metropolitan area accounting for around 40 percent of all residents. The capital of the province is steeped in history, especially after playing vital roles in the French and Indian War, the American Revolution and the War of 1812. Furthermore, it is a cultural hotbed, with Water Street standing as one of the premium shopping and cultural thoroughfares in the entire province. The city’s culture also includes a symphony and other musical ensembles, and both music and film festivals pass through the areas throughout the year.

Since St. John’s is the main hub of the entire province of Newfoundland and Labrador, its real estate market often sets the tone for the rest of the area. In keeping with the trends noted earlier in this article, St. John’s is projected to mirror the province as a whole in that it will likely continue to see a downward trend in home prices that contribute to a favourable market for buyers. These buyers are mostly expected to include first-time buyers and those looking to move into larger or nicer homes, likely thanks to new additions to their family. Additionally, these buyers are most likely in the market for one or two-story detached homes that give them the independence and space that they need to thrive.

Experts also project the volatility that marked the Canadian real estate market in 2019 to largely subside, leading to a more predictable and sustainable market that could work well for everyone. St. John’s represents an affordable opportunity for buyers to live in a popular metropolis within Canada, as prices here tend to be lower than in many other cities around Canada. However, those interested in investing in Newfoundland and Labrador should consider all pieces of the puzzle, since lower-income statistics must also be factored into investment decisions.

Investing in Newfoundland and Labrador summary

Every province in Canada represents unique investment challenges and opportunities that investors can weigh. The real estate market in Newfoundland and Labrador is special and unique in a few ways. The province has been rocked by COVID-19, as have most other parts of Canada, which has contributed to instability in many areas of the economy. To be certain, the real estate market is not free of this instability and has probably felt it harder than many other industries. Investing in Newfoundland and Labrador, as with investing anywhere else during this pandemic period, means going in with your eyes wide open about the potential risks.

That said, it also means going in prepared to find value and opportunity when it comes to real estate in the province. It is solidly a buyer’s market here, and likely projects to be so for quite some time, or at least until uncertainty among all participants starts to diminish. The projected return of stability to the Canadian overall market should be seen as a strength, however, and investing in Newfoundland and Labrador could be the right fit for you if you can stomach the slow growth that we are likely to see for a while across the country.

A buyer’s market like the one that exists across the province right now can safely be seen as a chance for real estate investors to make their marks. If you’ve been considering jumping into the market in Newfoundland and Labrador, this could be a great time to do so. Despite the low inventory that we’ve seen coming on to the market, the properties that are available for purchase are being sold for less than they were a year ago. Real estate investors who are willing to accept some risk should strongly consider investing in Newfoundland and Labrador properties, as we are confident that they represent good value and reasonable potential for growth.

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Scott Dillingham

Scott Dillingham

I have been investing and lending to real estate investors for nearly 10 years now. After thousands of successful deals between flips, rent to owns, student properties and commercial assets I have developed a deep knowledge of real estate investments and have a passion of sharing this information with the world! If your looking for a lender who specializes in rental property financing you're going to want to connect with me at team@lendcity.ca.