Investing in Canada’s Real Estate Market Just Got Risky

Canada’s real estate market was going strong, providing substantial returns on investment for investors until the market started to take a downturn. We’re seeing a lot of areas experiencing major declines in home prices, and Vancouver’s home sales have fallen their largest percentage since the Great Recession.

Home sales in the region fell 42.5% in November, and a major issue is that 1.2 homes are being built for every new resident.

Just 1,608 homes were sold in the metro area last month, and this accounts for the lowest sales for the month since 2008.

Toronto is also facing a decline in housing sales, which have fallen for the eighth straight month. New listings are down 26%, but home prices are remaining steady. This is giving investors some hope that they will not lose out on their investment.

Toronto’s sales and prices have started to stabilize after a major drop earlier in the year, and some investors suggest that the decline in sales is due to a lack of new listings.

Should Investors Pursue Canada’s Real Estate Market?

Sales in Toronto are down 15% compared to the same period a year prior, and home prices are rising at a slower pace of 3.5%. There’s still money to be made in the market, but investors are opting to invest in other markets, primarily in the United States, where prices have remained strong in some regions.

Iowa’s market, for example, is expected to remain rather strong, with appreciation rates of 7.7% in some cities, including Mason City and Pottawattamie county. But new home sales in the U.S. fell to a 2-½ year low in October, so investors will want to remain cautious in the U.S. as well.

REITS are also an attractive option due to the market slowing in the U.S. in some regions, as inventory issues start to subside.

The top Canadian REITs include:

  • RioCan
  • H&R REIT
  • SmartCentres
  • Canadian Apartment Properties REIT

REITs offer a safer investment than purchasing real estate because they include portfolios, and this means that they have rent and income that is derived despite the market’s current sales lull.

RioCan, for example, is an investment trust that has 289 retail properties and leasable space of 44 million square feet. Enterprise value for the REIT’s portfolio is $14 billion, and the dividend for the company is 5.9%.

REITs may provide less of a return on investment than purchasing, remodeling and reselling properties, but the massive portfolio size and lease space make them less risky when the market drops.

Investors will want to remain cautious when investing in Canada’s real estate market due to the current sales drop in many regions.

While prices have remained relatively stable, if inventory levels continue to grow, we may see a lot more competition in the market, pushing prices down. With sales slumps occurring, it may be better to wait for economic indicators that the market is on a path of sales recovery before diving into a market where the sales have been steadily declining in recent months.

David Jackson

David is a personal finance expert, a professional male model, and an entertainment writer.