A major theme for the Canadian real estate market in 2021 has been investors representing a significant portion of demand, from large urban centers to small towns from coast to coast. Whether it’s an investment titan or individual players with multiple properties, the canadian housing market has been fertile ground for investors trying to capitalize on the sizzling real estate market.
Last summer, it was reported that investors accounted for one-fifth of home purchases in Canada. As another example, last fall Teranet released its quarterly Market Insight report, revealing that investors made up about a quarter of all residential real estate transactions in Ontario and a third in Toronto.
Suffice it to say, investors are racking up several homes in Canada’s scorching real estate market amid low mortgage rates and rising prices. This creates fierce competition for potential non-investor owners. But will this trend continue as we look into the next calendar year?
Canadian real estate investors to target ‘beds, sheds and renovations’
In its latest âEmerging Trends in Real Estate 2022â report, PricewaterhouseCoopers (PwC) spoke to investors, fund managers, developers and other industry professionals, and identified several key trends that real estate investors should research next year.
According to the people interviewed by the study’s authors, the so-called promising business opportunities are “beds, sheds and renovations. “But what does that even mean?
Storage and execution: Warehousing and fulfillment facilities have been identified as two investment and development sub-sectors.
Rental housing: Two categories of rental housing have been identified as potentially attractive investment opportunities: moderate income / work apartments and single family rental housing.
Health care and life sciences: Medical offices are attractive options for retail investors because of their long-term survival through essential services. Additionally, as PwC notes, many of these healthcare tenants work with the federal government.
So, if real estate investors have their eye on where to invest in these types of industry segments, where should they park their money? PwC has compiled a list of top markets to watch for next year, all of which could be ripe opportunities in the categories identified:
- Quebec city
“More than ever, it will be important for companies to embark on a transformation program focused on strategically managing costs and accelerating innovation and investment in the most promising business opportunities,” said the report.
“Demand for more space is a factor increasing the prospects for single-family rental housing, which may offer a more affordable alternative to buying a low-rise home.
What about interest rates?
The PwC report did not discuss the possible impact of rising interest rates on the residential and commercial real estate market.
At this point, it’s just speculation about what might happen to the Canadian real estate market once the Bank of Canada (BoC) pulls the trigger for a rate hike.
Right now, the BoC is considering a rate hike in April, with rate hikes potentially of 100 basis points next year. However, market analysts warn that, if correct, investors could tone down their speculative nature on housing as an investment, as higher borrowing costs and / or falling house prices eat away at their market. capital.
The credit industry could also be affected when interest rates start to rise. Equifax Canada has noted a ““Worrying” in the surge in home equity lines of credit (HELOC). Data shows new HELOC volumes were up 57% year-on-year in the second quarter, which could lead to unwanted market conditions if rates start to climb.
Additionally, the central bank revealed that variable rate mortgages accounted for more than half (54%) of new home loans last summer. This is notable, since variable rate mortgage borrowers would see their cash flow eroded by efforts to normalize rates.
Some investors could go so far as to sell their properties. For some, this would be a positive step in the right direction, adding more supply to the tight market. For others, however, this trend could hurt Canada’s economic recovery. But is the country already experiencing a decline in real estate investment?
A drop in real estate investments in Canada
Data from Statistics Canada and the Canadian Real Estate Association, compiled by Better Dwelling, revealed that investors are reducing their dollar volumes in Canadian real estate and pumping more money into US stocks and bonds.
In September, the dollar volume of existing home sales fell at an annualized rate of 5.9% to $ 34.9 billion. At the same time, Canadians investing in foreign stocks jumped 33% year over year, with most of the money invested in US stocks.
Whether it’s the continued impacts of COVID-19 or a rising interest rate environment, Canadian real estate investors could face some changes as we approach 2022. But, as the world l Over the past 20 months, anything can happen, and housing in Canada has shown remarkable resilience in overcoming a range of obstacles (including a global public health crisis)!