Is real estate a good asset to own in Canada? Well that depends on your investment strategy, cashflow may not be the way to go – July 25, 2020,
Canadian governments on all levels are all in debt and via COVID-19 in just a few months because of the Canadian private sector shrinking, Canada’s public sector got a whole lot larger. In America, where their banks aren’t as Keynesian as Canada, banks have already raised their mortgage rates, despite what the U.S central bank, known as the Federal Reserve has signaled.
Although the new Canadian central bank governor Tiff Macklem as signaled that interest rates in Canada will low for a long time, at this point nobody is really paying attention, because domestic price inflation is obviously going to be the cause of worry for every.
I’m not a believer in minimum wages, but wages are definitely going to have to rise to meet the Canadian dollar devaluation reality. Canada via multiple different crown corporations already has price controls in a large number of protected industries, but the private sector in Canada is going to have a hard time discovering a profit.
Walmart Canada recently got ahead of the inflation curve and passed costs onto their Suppliers
Walmart Canada will start charging a set of new fees to its suppliers as a way to recover some of the costs associated with its $3.5-billion modernization plan — a move that has some manufacturers “absolutely furious,” according to an industry rep.
In a letter to its more than 3,000 suppliers on Friday afternoon, Walmart characterized the new fees — up to 6.25 per cent of the cost of goods — as a reasonable trade-off, since the multi-billion-dollar upgrades to stores and e-commerce will lead to sales growth for suppliers.
What Walmart did, IN MY OPINION, is THEY ADDED ‘a value-added tax’ to their suppliers, that I actually think their suppliers will appreciate later, and I bring this up, primarily because making your real estate cash flow is going to prove to be very difficult as the Canadian dollar loses purchasing power. Walmart is in the real estate business as is Amazon, what’s happening in case people aren’t noticing is that as the private sector contracts, companies that add value, have all of sudden gotten more powerful, but not in the sense that’s necessarily good for society.
So let’s say your property makes you $1000 per month in profit, well let’s say $1000 buys you fewer things, let’s also imagine asset prices all over Canada are rising, let’s also imagine that equity appreciation is rising but not to the same level as real inflation in the country.
If the cost of everything is higher, while wages are flat because the private sector has shrunk, cash flow can become a problem for asset owners really quickly. Already there are Canadians who can’t pay their mortgages, there are a lot more Canadians who can’t pay their rents. These bills, the new debts are still going to exist a year from now.
If your property or your asset offers no value or can’t really add any value, all of sudden your cashflow is worth less than it used to be worth. This is hard for people to understand because they’re assuming that renters and other people will have disposable income like they once did, but the unfortunate thing is a lot of people have lost their jobs and Justin Trudeau’s cabinet isn’t exactly friendly to new businesses.
The problem with having a huge public sector is the public sector doesn’t understand the profit margins of the private sector. The margins of profit for Canada’s private sector were thin prior to Covid-19, I can only imagine what they are now. A lot of businesses are in debt to the government and it wouldn’t surprise me if employees start demanding pay increases, adding to the new Canadian reality is the USMCA, which removed some of the advantages Canada used to have lover the United States.
Jobs and real estate is a very important relationship and well, if you’re in real estate for cash-flow purposes, you’ll need to be creative, because I see flippers and being the beneficiaries of the coming real estate appreciation and this is really bad for people with one property or several real estate properties barely cash flowing!
Interesting times ahead!