In 2015, the average home price in Prince Edward Island was $165,693. The island had the lowest average provincial real estate costs in the country, and has for many years.
This year, the PEI real estate market saw an unprecedented jump: As of March 2016, the island saw costs rise 17.1% year-over-year, the second-highest growth in the country, (behind Vancouver).
Now, I’m sure you’re all asking the same question I did:
Why?
PEI is a perfectly nice place. The red sand beaches attract tourists, as do the Anne of Green Gables landmarks. Charlottetown, the province’s capital city, has a population of nearly 35,000, with typical Maritime homes and historic features.
But why would the real estate prices on Canada’s smallest province be suddenly jumping through the roof in 2016?
You may be thinking it’s big-city dwellers buying vacation properties on the island. In a sense, you’re right. There are occasional giant properties that go for sale, like this $5-million seaside mansion with its own whale watching tower, that drive the provincial average up.
However, the key factor in PEI’s price growth isn’t vacation homes, Charlottetown’s charm, or a sudden love of the ocean. It’s farmland.
According to a CBC article, farmland has seen a 50% jump in land value over the last year, with a 40% rise in sales.
Many baby boomer farmers are reaching retirement age. Without heirs to pass their land to, these farmers are selling their land, receiving a satisfactory price by PEI standards. And because the prices of PEI farmland are still well below other areas, outsiders needing farmland are turning to the little island that could.
Local farmers are also expanding their operations by snatching up this land, even if it is at a higher cost than usual for PEI. There are even Europeans looking at buying farmland to start anew on a spacious island much unlike mainland Europe.
What does that mean for the future of real estate in PEI?
The jump in real estate prices came as a shock to most in the market. Months before, articles were published that basically described a market that was growing as normal—3 or 4% each year—with no forecasted surprises. Therefore, it’s difficult to speculate on the future of the island’s real estate.
However, it seems there are two common-sense scenarios for the next few years.
The first is that the PEI farmland and, therefore, the entire PEI real estate market fall back to 2015 levels. If the farm boom is purely due to a wave of retiring farmers selling off their land—more of a coincidence than anything—that will end soon enough. And this is entirely possible. There have always been interprovincial real estate buyers and international interest in Canadian land, so both may not be affecting the market enough to influence prices.
The second is that PEI farmland grows to a provincial price equivalent to farmland in the rest of the country. That price could be this new 2016 threshold or it could be higher. It’s possible that PEI’s market was “forgotten,” meaning there wasn’t much outside influence, which kept prices low. If outside buyers continue buying up land, it could also affect real estate in all areas of PEI, from Summerside to Charlottetown, keeping the provincial average at a higher level than ever.
In either case, PEI’s real estate will still be some of the least expensive in the country; I have no doubt about that. (PEI is not going to suddenly be Toronto, Vancouver, or Calgary.) However, it’s an anomaly market, as farmers both local and from elsewhere are dictating how the province’s real estate will look in five years. It’s definitely something we should all keep an eye on.
Flickr: Martin Cathrae
