One of the chief 2021 themes of the Canadian real estate market has been investors representing a significant portion of demand, from the major urban centres to small towns from coast to coast. Be it an investment titan or individual players possessing multiple properties, the Canadian housing market has been a breeding ground for investors trying to capitalize on the sizzling real estate market.

This past summer, it was reported that investors accounted for one-fifth of home purchases in Canada. As another example, this past fall, Teranet released its quarterly Market Insight Report, revealing that investors represented about one-quarter of all Ontario residential property transactions, and one-third in Toronto.

Suffice it to say, investors are accumulating multiple homes in Canada’s red-hot real estate market amidst low mortgage rates and rising prices. This is creating stiff competition for non-investor prospective homeowners. But will this trend continue as we flips to the next calendar year?

Canadian Real Estate Investors to Target “Beds, Sheds and Redevs”

In its latest “Emerging Trends in Real Estate 2022” report, PricewaterhouseCoopers (PwC) spoke with investors, fund managers, developers and other industry professionals, and identified several key trends that housing investors should research next year.

According to the respondents that the study authors interviewed, the so-called promising business opportunities are “beds, sheds, and redevs.” But what does this even mean?

Warehousing & Fulfillment: Warehousing and fulfillment facilities were identified as two sub-sectors for investment and development.

Rental Housing: Two categories of rental housing were named as potentially attractive investment opportunities: moderate income/workforce apartments and single-family rental housing.

Health care & Life Sciences: Medical offices are appealing options to retail investors because of their long-term survival due to essential services. Plus, as PwC notes, many of these health care tenants work with the federal government.

So, if real estate investors have their eye on places to invest in these types of industry segments, where should they park their money? PwC has compiled a list of the top markets to monitor next year, all of which could be ripe opportunities within these identified categories:

  • Vancouver
  • Toronto
  • Montreal
  • Calgary
  • Ottawa
  • Halifax
  • Winnipeg
  • Edmonton
  • Quebec City
  • Saskatoon

“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,” the report states.

The demand for more space is one factor raising the prospects for single-family rental housing, which can offer a more affordable alternative to buying a low-rise home.”

What About Interest Rates?

The PwC report did not discuss the possible impact rising interest rates would have on the residential and commercial real estate market.

At this point, it is entirely speculative as to what could happen in Canada’s housing market once the Bank of Canada (BoC) pulls the trigger on a rate hike.

Right now, the BoC is penciling in a rate hike in April, with potentially 100 basis points’ worth of rate increases next year. However, market analysts warn that, if accurate, investors could ease back their speculative nature on housing as an investment, since higher borrowing costs and/or falling house prices would eat away at their capital.

The credit industry could also be impacted when interest rates begin to rise. Equifax Canada noted a “worrisome” trend within the spike in home equity lines of credit (HELOC). Data show that new HELOC volumes advanced 57 per cent year-over-year in the second quarter, which could lead to undesirable market conditions should rates start climbing.

Moreover, the central bank revealed that variable-rate mortgages represented more than half (54 per cent) of new home loans this past summer. This is notable, since variable-rate mortgage borrowers would see their cash flow eroded on rate normalization efforts.

Some investors could go as far as selling 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 negatively affect the Canadian economic recovery. But is the country already seeing a drop in real estate investment?

A Decline in Canadian Real Estate Investment

Data from Statistics Canada and the Canadian Real Estate Association, compiled by Better Dwelling, found that investors are reducing their dollar volumes in Canadian real estate and pumping more money into U.S. stocks and bonds.

In September, the dollar-volume of existing-home sales fell at annualized rate of 5.9 per cent to $34.9 billion. At the same time, Canadians investing in foreign equities surged 33 per cent year-over-year, with most of the money going into U.S. securities.

Be it the ongoing impacts of COVID-19 or a rising interest rate environment, Canadian real estate investors could face some change as we head into 2022. But, as the world has witnessed over the last 20 months, anything can happen, and Canada’s housing sector has shown remarkable resilience to overcome a series of hurdles (including a global public health crisis)!

 

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