As uncertainty spreads through the world’s financial markets, investors are growing increasingly skeptical of stocks and traditional bond vehicles. Equity valuations are extremely stretched, particularly in North America, and emerging markets still present a level of risk that many are not prepared to take. In the midst of all the geopolitical uncertainty, real estate remains a prime opportunity and Canada’s market is a particularly strong investment proposition.
“Canada is extremely attractive for different types of international investors: those who want to benefit from the strong market conditions here and others who want to move here to get Canadian resident status,” says George Lawton, CPA, CA, CEO, North American Home Finance Inc. “There are lots of good economic indicators that make Canada attractive. Compared to other countries, employment has been good since the credit crisis and even our taxation levels are now equal to or better than the U.S. in many cases.”
Lawton also highlights another benefit of real estate investing in such volatile times: its ability to hedge against inflation. Since the credit crisis many experts have been waiting for inflation to spiral out of control, but, even if inflation did take off, real estate investments would remain secure. “Construction and building replacement costs are directly related to inflation, the value of land is connected to income levels, and income is directly impacted by inflation,” Lawton says. “Both of those things are driven, and benefit from, inflation from a returns standpoint. Therefore, real estate is a good thing to have if you’re worried about inflation or too much money being printed.”
Governments are incented to ensure economies have healthy levels of inflation for many reasons. Deflation reduces the tax base, which has direct consequences on pension benefits, healthcare and various other public services. “In times of inflation, asset values are rising and people psychologically feel good when they see their home value grow – it’s a good time to have a part of your portfolio in real estate,” Lawton says. “Over the past 10 years, all of the major North American pension plans have set up strategies to directly allocate to real estate including the Canada Pension Plan investment fund. That’s a strong signal of how well the market is performing.”
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