Canadian real estate investment is missing an ingredient

by Neil Sharma on 08 Jun 2018

With the Canadian housing market unquestionably in a state of flux, questions are naturally being asked about the continued viability of real estate investment.

According Neville Joanes, Chief Investment Officer at WealthBar, Canadian real estate will remain a sound investment provided portfolios are diversified

“We look at real estate as being a set of an asset class,” he told CREW. “When we have portfolios for clients, we like to diversify across equities like fixed income, bonds and real estate. Our viewpoint is they should have some exposure to real estate in their portfolio for their diversification.”

While benchmark prices in the residential sector are in declivity, the overall economic picture in the country remains buoyant, he added.

“When we look at the Canadian residential real estate sector, we’ve seen a decline of benchmark prices, and that’s one of worst declines since financial crisis of ’08. We do have faith in the Canadian real estate market because if we look at it in the commercial and professionally managed residential class, from an investment standpoint, we still have faith in it. We expect the Canadian economy to strengthen, and as it does people and companies will want more space, whether it’s space for larger homes or renting space for businesses. We see strength in the Canadian economy in the real estate market.”

However, the rising rate environment has rendered the market nebulous. Overleveraged investors could imperil their ability to make prompt mortgage payments.

“Even though rates are not rock bottom like we saw several years ago, they’re still very low,” said Joanes. “If there’s a 1.5% increase, that could significantly affect mortgage payments. In most municipalities, there are controls by how much you can increase your rent by, and if you can’t increase with rising mortgage rates, you might be in a position not to increase rent to levels that cover the mortgage costs.”

Investment in Canada will remain strong, though. Roy Salsinha, CEO of Manhattan-based Carmo Companies, says that commercial investment in Canada on an institutional level is sure to grow. His company is bringing together 250 of the largest institutional investors, endowments, developers, private wealth investors and real estate professionals from Canada, the U.S. and Latin America.

In fact, the disarray south of the boarder may impel even greater investment.

“There’s also an appetite for investment in Canada because, pretty obviously, a lot of Latin America-based investors really don’t like the rhetoric, given the U.S. elections, so a lot of them have been looking at other countries to place money and Canada is one of them,” said Salsinha.

 

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