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A home in North Hatley, Quebec. A rolling landscape and vibrant agricultural community make the Eastern Townships a popular destination for property buyers. With prices ranging from $170,000 to $1-million, there’s something for everyone.

The following article is from Canadian Real Estate Wealth Magazine.

While residential real estate in general rebounded sharply following the financial crisis of 2008 and the ensuing recession, vacation homes – traditionally linked to discretionary income – haven't enjoyed the same recovery.

"We just haven't seen the activity levels in the marketplace and prices have remained relatively flat while prices in urban regions have risen quite steeply," says Phil Soper, president and CEO of Royal LePage Real Estate Services. "Generally, people seem to continue to be concerned about global economic issues impacting Canada."

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The concerns have made many people less willing to spend money on properties other than their primary residence. Restrictions on borrowing and media attention to the issue of rising consumer debt levels have also made people more conscious of keeping their financial house in order; the trade in vacation homes has suffered in consequence.

A survey by Leger Marketing this spring as part of Royal LePage's regular recreational property report found that 59 per cent of survey respondents who previously considered buying recreational property have decided not to move forward.

"The reason was concerns about the global economic conditions," Soper says.

A more cautious buyer has triggered caution among sellers, too, further cooling activity.

While financial pressures stemming from the recession and consequent job losses prompted some owners to sell properties to free up capital, many others have seen prices fall and held off listing their properties.

"Many of them are hanging on to those properties because they feel they are not able to get the value necessary," Soper says. "As a result, we don't have the amount of inventory that we should on the market, either. People aren't selling because they don't think it's a good seller's market and they don't have to sell."

Values hold

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However, sale activity this spring has shown an improvement over last year. Conversations with Royal LePage's regional managers have been encouraging, and Soper believes markets have stabilized nationally and are in some cases recovering.

While markets aren't swift, thanks to the double-headed dynamic of cash-conscious buyers and patient vendors, they are steady.

"Both the spring market of 2011 and the current market are moving along crisply," Soper says. "It's not a great market, but unit sales are up, prices are flat and properties are moving. It's not necessarily a negative situation at all."

Ontario, for example, has been "completely reasonable," while Alberta has shown signs of strength for the first time in six years. The province experienced a dip in 2006 as markets paused, then a sharper shift south in 2008. Now, with confidence in the oil patch and consumer spending rising (the province posted strong growth in retail sales last year), vacation homes are back on the agenda.

Throw in a constrained supply, and prices are also showing strength for lakeside properties between the major centres of Calgary and Edmonton.

"For a British Columbian or an Ontarian, you'd never dream of paying the prices they do for that geography," Soper says. "[But] it tends to be really chronically undersupplied."

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While the million-dollar properties at hotspots like Sylvan Lake have held their value, locations such as Pigeon Lake have seen waterfront prices become more affordable.

Royal LePage reports note that prices for drive-in waterfront properties at Pigeon Lake were running $400,000 to $600,000 in 2008, but have now pulled back to $350,000.

Similarly, in Ontario, values for properties on the Bruce Peninsula or in the Kingston/Gananoque region are virtually unchanged from where they stood four years ago. Drive-in waterfront properties on the Bruce Peninsula continue to trade at $250,000 to $450,000, while in the Gananoque area, the equivalent properties continue to max out at $300,000.

Meanwhile, along New Brunswick's Northumberland Strait – the so-called Acadian Riviera, with its sandy beaches and summer festivals – waterfront properties command prices north of $160,000, also on par with four years ago.

Potential challenges

As prices stabilize– and the fact properties have held their value despite fluctuations in market conditions and financing rules – mean times should be ripe for investors.

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However, banks and investors are more conservative in how they're approaching recreational properties. Banks are shying away from some assets in locations deemed too risky, as Harry Pettit, a sales associate with Prudential Kelowna Properties found out last winter.

While sales of cabins on local ski hills were showing signs of strength, bankers reviewing the deals some of his clients were trying to do weren't having any of it.

A four-bedroom condo that would have fetched $300,000 not too long ago listed at $200,000. And another property, purchased for $585,000, sold for $430,000.

RBC lenders in Ontario, however, refused to countenance a financing deal their regional lending team approved – for a top-notch client – because the bank had backed away from ski hill properties, Pettit said.

"They thought it was a slam dunk," he says. "It went back to Toronto and they said no, 'We're not doing anything on the ski hills right now.'"

And, if banks are cautious, buyers are equally so. They're not only keeping tabs on discretionary spending and mulling options for properties they don't need, they're also shying away from properties that haven't held their value.

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A case in point is properties sold on a fractional ownership basis.

While developers championed fractional ownership as a means of owning vacation property during the boom – it was also a convenient way for them to boost revenues from properties, as the sum of the parts was generally greater than the whole – vacation properties sold on this basis haven't fared well.

"When you take a look at the value and sales of fractional ownerships, they now tend to be less on an individual fractional ownership basis," explains Mark Lester, founder and leader of the specialized assets group at Sotheby's International Realty Canada. "The sum of the fractionals tends to be less than the whole."

He points to some of the West Coast resorts that were sold on a fractional ownership basis, largely waterfront properties along the B.C. coast – Painted Boat on the Sunshine Coast, Poet's Cove on Pender Island and others.

Owners now find themselves having to discount their shares in the property in order to achieve sales.

"The market has shifted, and people are no longer interested in buying the fractionals at a premium – in fact, the fractionals are discounted," Lester says.

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And of course, any discount in one share taints the rest.

"Once it's developed and some of the shares are sold – the value's diminished," he says.

Where possible, developers with units left to sell are offering them on a whole-ownership basis, avoiding the breakup of properties which are now worth more in themselves than as fractional interests.

"Anybody who thought that they were going to do fractionals are certainly not going to do fractionals today," Lester says. "The marketplace doesn't want to break up units."

Emerging trends

What the market is willing to accept, however, are smaller units.

An interesting phenomenon Soper has noticed as condominium living has become more accepted in Canada's urban centres is an equal willingness among vacation home buyers to opt for apartments in prime locations.

"It's really come into its own in the last decade," he says. "I think the concept of stand-alone, two acres on a lake, is going to become increasingly uncommon."

While this makes acreage a solid option for investors seeking to cash in on site appreciation, it also means owners with land in prime vacation spots may be able to cash in on redevelopment opportunities.

Savvy cottage owners have long sought to find properties that have grandfathered entitlements, such as narrower setbacks and less stringent requirements for septic fields and wells. Some properties built before tight regulations came in offer advantages to renovators that never to be replicated by new properties.

Similarly, some properties offer developers advantages once hogged by the wealthy few.

"Our cities are getting bigger and the demand on waterfront properties that's within a three-hour drive of our major urban centres is very high, so there's just less available waterfront land," Soper says. "It's very wasteful that one family that visits a property half a dozen times over a six month period have acres of land, and their own wells and their own septic system. It's not sharing the wealth very well."

He foresees more development of the sort common in the Laurentians of Quebec and B.C.'s Southern Interior, where owners of old motels and campgrounds have sold to developers with visions of lakeside resorts at popular destinations. Buyers are typically able to purchase a unit, placing it in a rental program during the part of the year when they're not using it.

Better than renting

A condo in a popular vacation spot, complete with modern amenities, is attractive. The opportunity to garner some cash flow when a unit isn't required as a getaway is also appealing, and a far more convenient option than renting out units.

Leger Marketing found that 51 per cent of condo purchasers would consider renting their property to offset the cost of ownership. The proportion was particularly high in Western Canada; in Alberta, for example, 49 per cent of purchasers would consider seeking tenants.

But nationally, just 17 per cent of owners follow through on those intentions.

"I found it quite fascinating," Soper says, quipping: "Like a lot of things in life, our intentions are often better than our actions."

Becoming a vacation property landlord isn't as simple as it sounds. The short-term nature of the tenancies are often subject to local laws, including bylaws governing how long a recreational property may be leased out, and the obligations tenants owe the surrounding community. There may be regulation of the modifications required to accommodate tenants, not to mention provincial landlord-tenant and accommodation legislation.

Rather than juggle the responsibilities, Soper believes many people step back from landlording in order to find other ways to fund a purchase which they consider a good long-term investment, regardless of what they do with the property.

"A lot of people, when they become faced with the daunting task ... just suck it up," he says. "[They don't] put the new siding on the cottage, or buy the new boat, or find other ways to scrimp."

Top 10 Vacation Markets

Okanagan Valley

Typical price for vacation properties: From $400,000 with land access

Typical rent: From $250 per night

British Columbia's Okanagan Valley has long been a favourite destination of vacationers from the Lower Mainland and Alberta. A four-hour drive from both places, the sun-soaked valley offers sandy beaches, sunny skies and a mix of outdoor adventure and culinary tourism. Vacation properties have been a tough sell here since the recession, but values are stabilizing and good deals remain on offer. The region's established popularity with vacationers mean the values to be had now will look good well into the future.

Glennifer Lake

Typical price for vacation properties: From $250,000 with land access

Typical rent: From $200 per night

Glennifer Lake's popularity among cottage-seekers is in its relatively affordable pricing. Alberta's newest lakeside cottage community, prices start at $250,000 with drive-in waterfront properties running approximately $349,000. This compares favourably to Pigeon Lake, where waterfront retreats run $450,000 to $650,000 and nearby Sylvan Lake, where the same properties can top $1-million. With prices down and listings up, investors can find deals here within striking distance of both Calgary and Edmonton, as well as fast-growing Red Deer, an hour's drive away.

Christopher Lake

Typical price for vacation properties: From $225,000 with land access

Typical rent: From $199 per night

Saskatchewan's resource boom has brought attention to many areas of the province, opening up the north as well as turning around the fortunes of real estate markets in Saskatoon and Regina. While southerners might like the grasslands of the south, Christopher Lake offers a rustic retreat two and a half hours north of Saskatoon. With prices equal to what's available in the south – properties here average between $225,000 and $450,000 – the location offers an intense northern experience unparalleled elsewhere.

Lake Winnipeg

Typical price for vacation properties: From $125,000 with land access

Typical rent: From $350 per night

The traditional retreat of residents in the Manitoba's capital city, Lake Winnipeg offers waterfront properties in the vicinity of $300,000. The prices are on par with five years ago, but double the average of a decade ago – underscoring the location's long-term value. While prices have plateaued, the future prospects are strong for this favoured destination. The recent strength of the Manitoba economy also bodes well for young professionals seeking a retreat here as their careers advance and discretionary income grows.


Typical price for vacation properties: From $150,000 with land access

Typical rent: From $295 per night

Kawartha Lakes and the East Kawarthas offer properties priced on par with many of Ontario's popular vacation spots – but also a cut below the expensive destinations around Georgian Bay. Year-round activities make the area, a 90-minute drive northeast of Toronto popular with both families and retirees, and the area also shows strong rental prospects. Rents for many types of properties here posted increases above the rate of inflation, promising investors good returns. Toronto's growth promises to make the region the cottage country of a new generation, which ensures growth in value.


Typical price for vacation properties: From $150,000 with land access

Typical rent: From $170 per night

Situated on the shores of Georgian Bay in the most expensive slice of Ontario's cottage country, Meaford seems hardly like a good value at first glance. But for investors with an eye to welcoming tenants for at least part of the year, it's worth noting that Meaford posted a 55.7 per cent drop in rental vacancies in 2011, and homes rent for an average of $1,200 (according to the latest numbers from the Canada Mortgage and Housing Corp.). While $1,200 a month may not generate cash flow from a million-dollar waterfront residence, it's worth factoring into calculations for land-locked properties, which max out at a mere $200,000.

Eastern Townships

Typical price for vacation properties: From $170,000 with land access

Typical rent: From $200 per night

The Laurentians have attracted their share of developers and celebrities, with Mont-Tremblant the jewel of the hinterland north of the St. Lawrence River. A quieter retreat is available south of Montreal in the Eastern Townships, as generations of politicians and writers have found. A rolling landscape and vibrant agricultural community make the area a popular destination for property buyers. Arts, culture and outdoor adventure are found in the communities that hug Lake Champlain, Baie Mississiquoi and Lake Memphremagog. With prices ranging from $170,000 to $1-million, there's something for everyone.

Nova Scotia

Typical price for vacation properties: From $100,000 with water access

Typical rent: From $200 per night

Atlantic Canada is often where Ontario residents – and not just those who originally called Atlantic Canada home – go to retire. With affordable prices that have retained their value over the past decade, vacation properties here often where the retirement dream beings. Demand has pushed prices up, however, with waterfront properties along the fabled South Shore fetching $400,000-plus. Closer to Halifax, lakefront properties can be found for as little $100,000. With an influx of disposable income expected from the shipbuilding contract awarded in October 2011, a property purchase now may well pay dividends down the road.

Avalon Peninsula

Typical price for vacation properties: From $93,000 with land access

Typical rent: From $200 per night

Newfoundland's resource-driven economy has infused new life into the local recreational property market, yet vacation properties here remain among the most affordable in Canada. A land-locked cabin will set back buyers $93,500, while waterfront residences command a mere $132,500. There's also room for appreciation, given that prices are up 10 per cent overall and listings are down. The strength of the market, and the affordability of properties, mark Newfoundland – especially the southern Avalon Peninsula – as an area worth investigating.

Vancouver Island

Typical price for vacation properties: From $349,000 with water access

Typical rent: From $109 per night

The islands off British Columbia's south cost have long been favourite getaways, with some properties dating back nearly a century. While the Gulf Islands are the retreats of celebrities, wealthy retirees and back-to-the-land types, Vancouver Island attracts a more urbane crowd. Celebrities and those able to afford million-dollar beachfront homes are here, but so are those seeking $300,000 cabins in secluded fishing ports. Alberta residents particularly favour Vancouver Island, while floatplane connections from Vancouver draw many from the Lower Mainland to properties near Victoria, as well as in the Cowichan and Comox valleys.

From Canadian Real Estate Wealth Magazine, a monthly publication focused on building value through property investment, covering topics such as values and trends, mortgages, investment strategies, surveys of regional markets and general tips for buyers and sellers.

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