Kevin O’Leary addresses ‘real estate correction’

by CRE on 19 Aug 2015
By John Tenpenny

Canada’s most-celebrated and controversial investor is offering real estate buyers a word of caution – in addition to his take on market corrections.

“I don’t know if it’s going to be a 30 per cent correction,” Kevin O’Leary, founder of O’Leary Financial Group and long-time Dragon, told BNN in an interview. “Maybe it just goes flat for 10 years, I have no idea. But would I be deploying more capital into real estate now, not a chance.”

His ambivalence echoes that of veteran investors in Canadian real estate as they digest the latest CMHC report on the market, expressing real concern that Toronto is headed into dangerous territory.

O’Leary isn’t necessarily convinced.

“One thing we’ve learned over the past ten years in housing in Canada is that reports and government officials don’t change valuations in housing, markets do,” he said. “I think this report is kind of irrelevant.”

For O’Leary, the condo market, specifically, the market for what he calls “shoebox” condos is the area that will indicate where the market will go. He called them the “canary in the coal mine.”

“If you look at the shoebox condo markets in Toronto, Calgary, Vancouver and Montreal, usually the cracks occur there first. I watch those every month and there has been no change in pricing.

In fact, O’Leary said demand for downtown housing in all Canadian cities is insatiable because millennials and people who are moving there don’t want to live in the suburbs or don’t own cars.

Investors agree.

“In these key markets and in Toronto especially, there is a major shortage of rental units in the downtown core and other highly populated pockets of the GTA,” says Paul D’Abruzzo, The CashFlow Engineer. “The lack of new of ‘purpose built rental buildings’ means that a large portion of the condo units being sold, in these key markets, are filling the gap in the rental market.”

Asked when the correction will come, O’Leary pointed to interest rates. “While you have continued zero interest rates and mortgages under three per cent there’s not going to be a correction in housing. It’s when and if Canadian rates go up, that this asset class will suffer.

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