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This report evaluates which Canadian Province has the cheapest land, which has the most expensive land, the price appreciation rate of land in different provinces, and the investment risk associated with owning land in different provinces.
So which Province has the cheapest land and which has the most expensive land?
30 years of data from Statistics Canada has been analyzed for this assessment.
Overall, the average price of land in Canada stood at $3,393:
1. Ontario ($ 11,815 per acre) has the most expensive land in Canada, followed by Quebec ($6,838) and British Columbia ($6,382).
2. The Province with the cheapest land is Saskatchewan ($1,595 per acre), followed by Manitoba ($2,269) and Nova Scotia ($2,332).
Land prices and related data from 1990 to 2020, attached at the end of the report.
Which Canadian provinces have seen the highest land price appreciation?
As per data of the last 30 years:
1. Land prices in Quebec rose at an average growth rate of 7.25%, the highest amongst all provinces, followed by Alberta, with a growth rate of 7.12% p.a., and Manitoba at 6.7%.
2. The lowest appreciation in land prices, p.a., was seen in the Province of Nova Scotia, at 3.7%, followed by Prince Edward Island with an average price appreciation rate of 5.07%, and New Brunswick at 5.28%.
What about the risk? Prices are riskiest in which Province?
Investors, potential buyers, and other holders may be concerned regarding the risk associated with holding land in Canada. Apprehensions may exist about an overall economic recession/depression, or crash in housing prices severely impact land prices. But Land prices in which provinces are the riskiest?
Risk, as measured by the standard deviation and variance of change in land prices in different provinces, is presented below:
1. Land prices in Saskatchewan have had the highest variance of returns and thus have been the riskiest, followed by British Columbia and Manitoba.
2. Land prices in Nova Scotia have had the lowest variance of returns and thus have been the least risky, followed by New Brunswick and Alberta.
It is important to note, however, that risk can be upside risk or downside risk as well; Provinces with a high variance associated with land prices can also see a higher upside risk as well. Risk tolerance, nonetheless, depends on the investor(s) risk appetite and overall financial strategy.
(See also our report on how much house prices may fall in Canada for further info on house prices)
How are land prices impacted in a recession in Canada?
Recently, Land prices, arguably, have demonstrated the attribute of a safe haven asset. Like a few other safe haven assets, Land prices saw a significant boost in the 2008 financial crisis period. Land prices nationally rose by 12% in 2008, during one of the worst economic declines in recent history, with prices in B.C. performing the best, with an appreciation of 19% in 2008.
During the economic decline of 2020, land prices nationally rose by 5%, with the highest increases recorded in Newfoundland and Labrador (13% appreciation), New Brunswick (11%), and Prince Edward Island (8%).
In contrast, the S&P/TSX (Toronto stock Exchange) saw a decline of about -35% in 2008 and +0.66% return in 2020.
For a further analysis of gold vs. farmland, see our report for in-depth analysis).
Future prospects: is land a good investment then, in conclusion?
Broadly, land should be considered a ‘defensive’ investment, one which attracts more attention when the economic outlook turns somber. Nonetheless, land has also performed well in periods of economic expansion, with average prices across the country rising by 8% from 2009 to 2019 period, rising by a total of 113.6% in the post-2008 decade. In contrast, the S&P/TSX during the post-2008 decade (2009-2019) appreciated by 99.2%, while the S&P500 appreciated by 303% in the same period.
It should be noted, nonetheless, that risk-adjusted returns of Canadian land are higher compared to S&P/TSX, and S&P500, as land prices do not experience highly volatile movements as stocks do, with a sample standard deviation of land prices being 3.22%, compared to 11.5% for S&P500; the sample standard deviation (of land) is 72% less than S&P500, but the returns are 62% lower.
Sample standard deviation calculation (S&P500):
It is worth noting here that we have not included the passive income that may be generated by renting out land, income from a well or other infrastructure, or crops that may not require a high degree of supervision or management, such as a tree plantation. Additional revenue would, of course, improve the yearly returns.
(For an in-depth analysis of farmland compared to gold, see our report).
Finally, whether land is a good investment depends on the investment objectives, investor risk appetite, and risks associated with other investments. In a condition when financial markets, be it the commodity markets, housing markets, or the equity markets, are considered as overvalued, land can be considered a reasonable alternative save haven asset to hedge against long-term inflation expectations and sharp devaluations (price crashes) that can occur in equity markets in Canada.
Long-term, nationally, an investor can expect a price appreciation of about 6.5%, with a 95% probability (as per 95% confidence interval) that the yearly returns, broadly, would be in the range of 5.2% to 7.7%.
Of course, returns would differ in different provinces, and historical data from specific areas would provide a more precise range for possible future expectations.
Land can also be a good diversification opportunity for the preservation of wealth; for example, an investor with high exposure to the housing market, main stock indices, and gold, etc., should consider adding land to her portfolio for increasing portfolio diversity & protection against an adverse systemic event or an idiosyncratic event impacting a significant portion of the portfolio.
While a higher level of management may be required, than say, holding an ETF, the benefits, especially in areas with a healthy price appreciation rate; furthermore, holding an ETF in this space may not be an ideal method of investing in this space as the volatility of ETFs in the space is considerably higher than the volatility associated with land prices in general (see report for further explanation).
Source of data:
Statistics Canada. Table 32-10-0047-01 Value per acre of farmland and buildings at July 1