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Better days ahead for residential realtors.


Over the past few years, Winnipeg's real estate market has followed the Manitoba economy - no booms or busts, just steady activity. Last year was no different. The total number of sales of existing houses was down by about five percent. And, the value of resale homes increased, with the average selling price rising by slightly over five percent to $84,368, compared to $80,302 in 1988.

The Canada Housing and Mortgage Corporation predicts the market will rebound in 1990, with 10,000 sales at an average price of $87,500, an increase of 3.8 percent. Despite this predicted upswing, it's far from a buoyant situation, as far as industry officials are concerned.

While aficionados say 1990 will be better, it won't be by much unless something is done to improve Winnipeg's image. New industry, new businesses and more people must be attracted to the city if growth is to continue, and for the real estate market to improve significantly.

But, optimism still prevails; Winnipeg is a centre that's just waiting to be discovered by the multinationals, say many - multinationals whose executives are paying excessively high costs for office, manufacturing and living space in Toronto and Vancouver. Once they realize they can save upward of $45 per square foot per month on Class A office space by locating in Winnipeg, economics will dictate they should move their operations here.

In the meantime, Winnipeg's real estate agents plod along. "It looks like 1989 will come within the parameters of what we projected - down about five percent in unit sales," says Ernie Friesen, president of the Winnipeg Real Estate Board. "The year was somewhat strange. In the first six months, unit sales were down by 13 percent and dollar volumes had dropped by 11 percent, compared to the same period in 1988."

However, sales and dollar volumes rebounded somewhat after June. "The third quarter was down only 2.7 percent in unit sales and one percent in dollar volumes, which was almost the same as 1988," he adds.

After that, the market became, "very encouraging, but total unit sales and dollar volumes still failed to match the 1988 performance."

The outlook for 1990 is brighter. It was a buyer's market last year, but it will be more balanced this year, with improved consumer confidence, suggests CMHC. But, Winnipeg real estate agents would like to see some action to address the problems they see facing Manitoba.

"Our out-migration is the biggest problem we have right now, and it's the main reason the industry is having difficulties," says Neal Fisher of Preferred Properties, and a past president of the Real Estate Board. "The provincial government is not doing anything about it, and until they do, we have very little hope for a strong market."

There are signs that the Toronto and Vancouver residential markets are slowing down - sales in Toronto dropped by 22.5 percent at the end of November compared to the same period in 1988. Now, the West is, "where the economic action is," says housing expert Frank Clayton of Clayton Research Associates Ltd. of Toronto.

That shift is brightening the Manitoba picture - except for the spectra of out-migration. Statistics Canada estimates a net out-migration of over 10,000 Manitobans in 1988; to the end of September 1989, a total of 6,455 people had left Manitoba. CMHC is predicting that Winnipeg's population will have grown by a scant 0.6 percent in 1989.

The provincial government and the city of Winnipeg must do something to counter this exodus and to attract new industry if the real estate market is to prosper, local experts says. "We have the best commercial rents, the most affordable housing and we have to sell that," says Harry Deleeuw of Delbro Real Estate.

"In the United States, there's a move away from `mega-cities'," he says. "It's no longer sound economics for companies to operate in large cities where commercial rents are often exorbitant. The same trend is occurring in Canada, and Manitobans should capitalize on it."

"We believe there's a future for Winnipeg," adds Gary Bachman, president of Bachman & Associates. "The train made Winnipeg, the airplane lost it for us, but the fax machine is going to bring it back."

He believes that having an office in a major city is no longer as important as it once was - rather, quality of life is much more important. "With the fax machine speeding and improving information transfer, quality of life will impact more than location, and Winnipeg offers both," he says.

"We have to start promoting ourselves, though. We have to stress what we have to offer instead of what we don't have."

But, in terms of what the residential real estate market will do in 1990, most observers are optimistic. "We'll get our fair share because we work for it," says Bachman.

Friesen too is optimistic. He sees sales rising by five percent and dollar volumes increasing by as much as eight percent. But, the optimism is guarded. Total economic activity, including that of the real estate industry, will be governed by two factors: interest rates and the impact of the impending goods and services tax.

If interest rates remain relatively high, or worse, increase, then the residential real estate market in Manitoba will continue to be sluggish. Forty percent of buyers are in the market for the first time, notes Deleeuw, "and a one percent difference in interest rates has a major impact on this sector."

Then, there's the infamous GST, which is currently imposed at five percent on the value of all homes. "This will affect the market positively in 1990," says Friesen, suggesting that consumers will move home purchase plans ahead to avoid the GST, due to be imposed January 1, 1991.

"But I'm afraid of what will happen in 1991," he adds. "With increased housing costs, thanks to the GST, the first six months of 1991 could be chaotic for our industry, coupled with a lot of buyer resistance."

A five percent GST on a $100,000 home with an 11.5 percent mortgage amortized over 25 years will cost consumers an extra $14,955 over the life of the mortgage. But, that's not all, says Glenn Ponomarenko, regional manager of residential real estate services for Royal LePage. "The GST will be applied to real estate commissions, property surveys, lawyer's fees, conveyance fees, appraisal fees, moving costs, and telephone, hydro and cable television hookups. The additional tax on those services alone could easily add another $1,000 to the cost of buying a house," he says.

Ponomarenko says the real estate industry is unified in its opposition to the GST on housing. "Buying a home is a form of savings," he notes, "and applying a tax on housing is really like taxing people's savings - savings that have accumulated with dollars that have already been taxed through income tax."

Royal LePage is cautiously optimistic about prospects for 1990. They're predicting the Winnipeg market will see an increase of two percent in unit sales, with average selling prices rising by four percent to $86,500, which is $2,500 above the mean price in 1989.
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Author:Park, Kip
Publication:Manitoba Business
Date:Mar 1, 1990
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