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4.0 Strategic Market Analysis SummaryThe Company will be concentrating on two market segment. The first one is the retirement market consisting of those individuals and couples seeking to retire to the Collier county area. The second segment is local residential clientele. The retirement industry in Canada and US has been steadily growing over the past ten years. It is estimated by the U.S. Census Bureau that the retirement industry, that includes homes, medical facilities, specialty equipment, retirement entertainment services, etc., accounts for 4.8 billion dollars each year. Despite the outcome and speculation of such factors as the government shutdown, flood insurance, healthcare reform, and quantitative easing of 2013, the real estate market in Southwest Florida area moves very well. This indicates that there is continued confidence despite the uncertainty and that the area has a well-functioning market. The market reports also show that both buyers and sellers are getting a reasonable deal.
4.1 Economic OutlookThe financial crisis began in 2007 with the breakdown of the U.S. residential mortgage market. As a result, residential real estate prices in the hardest-hit areas such as Florida are well below replacement value, leading many analysts to conclude that prices still nearly at the bottom. At the same time, the Canadian dollar remains very strong against the U.S. dollar. Any investment in U.S. assets is likely to provide a decent return over time based on foreign exchange gains alone. The overall housing market inched ahead of activity reported in 2012, which was considered a recovery year by market experts.
The Company will be actively engaged in two primary business strategies, developing residential properties and the rental of completed properties. The Company's two prong approach to real estate will allow the business to grow successfully in the rapidly changing real estate market. More importantly, this strategy will allow the Company to offset the risks from each business unit so that there is a diversified balance in the Company's real estate portfolio. This is especially important as the business uses leverage to finance the acquisition of its properties.
4.2 Industry and Market AnalysisThe U.S. Economic Census estimates that there are 21,300 companies that specialize in the construction of new residential units in the United States. On an annualized basis, these companies generate fees of $43.9 billion dollars while concurrently providing jobs to more than 520,000 people. In each of the last five years, aggregate payrolls have exceeded $20 billion dollars.
All signs point to stabilization for the Southwest Florida local housing market as evidenced in the 2014 Annual Market Report released by the Naples Area Board of REALTORS, which tracks home listings and sales within Collier County (excluding Marco Island). Overall pending and closed sales for homes over $300,000 increased by double digits in 2013.
At the beginning of the year, 74 percent of sales were traditional, while 26 percent were non-traditional short sale and foreclosed properties; but by December, traditional sales rose to 83 percent of all sales. This report indicates a tremendous market shift to home sales in the over $300,000. Closed sales of homes in the over $300,000 price categories increased by 22.5 percent in 2013. Reported data confirms that Naples in a predominately cash buyers' market, cash purchases make up more than half of all home sales in Collier County.
The report shows a clear and steady demand for housing in Naples in 2013 with the most impressive activity in the $300,000 and above category, which realized a 62 percent increase in closed sales from 260 units sold in 2012 to 397 units sold in 2013.
. Overall closed sales increased 27 percent from 1,366 in 2012 to 1,730 in
. Median prices for single family homes in the $300,000 category increased by 17 percent from $350,000 in 2012 to $409,000 in 2013.
. Overall inventory decreased by 18 percent from 6,557 properties in 2012 to 5,403 properties in 2013.
. Closed sales in the single-family market rose 11 percent, while closed sales in the multi-family or condo market rose 8 percent.
. The days on the market are down 14% overall.
. Average price per square foot for Naples FL was $172, an increase of 8.2% compared to the same period last year.
The report indicates the housing market is behaving in a "normal" manner. The solid incremental growth in the middle priced markets, is a good sign that housing market has recovered. Demand for newly constructed homes has increased in all price segments and in all neighborhoods.
4.3 Customer ProfileToday's U.S. residential market conditions seem to suggest that Canadians have an once-in-a-lifetime opportunity to buy U.S. real estate in desirable locations at historically low prices using cheap U.S. dollars. Many Canadians have always wanted a vacation home in the sun and are planning to buy a property that they will. In addition to enjoying the new home for years to come, it is more than likely that it will appreciate in value during that time.
The number of retirees is growing over the past 10 years. The percentage of the U.S. population over the age of 55 is 21% and is growing each year. In Florida, which has a high concentration of retirement communities, the growth rate is about 8%. This percentage is also expected to grow as the first of the "baby boomer" generation of Canadians begins to reach retirement age in the next decade. The purchasing power of Canadians had made them the No. 1 foreign buyer of U.S. residential property for the 12 months. Canadians accounted for 23% of the US$68.2-billion of foreign purchases, according to the Washington-based National Association of Realtors.
Nonetheless, as the Company intends to operate among several different buyers group, it is hard to characterize any specific homebuyer or tenant that will occupy the Company's properties. The Company will enact strict tenant quality and credit review procedures to ensure the Company's revenues will not be interrupted by tenant default.
4.4 Competitive AnalysisThe real estate industry is highly fragmented, with a large number of potential rivals. Since real estate is effectually one of the freest market oriented trades, competition cannot be accurately categorized. The Company anticipates that there will be a sizable amount of competition from both single development contractors to large construction companies that are seeking to gain from the real estate. However, the Company believes that providing a customized, advanced design, and Canadian customer oriented development will put it in better marketing position.
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