Canadian Real Estate: Has investment become high risk?

Real Estate, along with Gold and Oil, is said to be one of those commodities that has a never ending demand and limited supply. It seems that Real Estate business it has finally hit its glass ceiling as far as Canada is concerned. There has been a marked decrease in the demand for newer constructions in the past few months.

“We expect a gradual unwinding of the imbalance in both sales and prices over the next few years” says Francis Fong, who is an economist in Toronto-Dominion Bank. Fong states that low interest rates on land are the only reason for the existing demand of homes.

Canada, with its economy heavily linked with USA due to the North American Free Trade Agreement (NAFTA), has become more affected by the 2009 financial crisis.

Most worryingly, it is the markets of Toronto and Vancouver that are expected to be the worst hit ones. Over the past decade, Real Estate of these cities gave handsome returns to its investors. It seems that the “bubble” could soon begin to burst. The grave predictions of financial experts, who consistently maintained that both the markets are hugely overpriced, have come true.

Although the market showed slight signs of improvement in the first weeks of September, there aren’t any real takers in the market. On the flip side, most of the owners are listing their homes in order to make most of the present situation. “Get rid of it as soon as you can” seems to be the most common advice of the financial advisors.

At this late stage, it must be noted that most of the financial experts are preaching caution. While admitting that selling the land as soon as possible sounds as a most sensible course of action, the experts say that such actions might cause more harm to an already weakened market. An increase in the listed houses is likely to trigger a chain reaction, which will plunge the economy into deeper crisis.

Any worse situation will affect the other markets that might cause pitfalls for the economy. The tightening of mortgage rules has visibly dampened any potential investors, who were willing to take the odd risk.

However, the Canadian Real Estate Association (CREA) maintains that all is not doom and gloom in the market. “The correction will be minimal” says the chief economist of the organization, Gregory Klump. He says that prices will continue to “sit on the fence” between profits and losses, leading to a stalemate. In short, Klump says that the investors looking for quick disposal will not stand to gain when compared to the others, who hold onto their investments.

In short, the Real Estate market in Canada hangs on a precipice. Any sudden movements might upset the whole applecart, which can lead to only one end. The prudent solution in these times is to hold onto the assets in hand, and wait for the market to recover.

Source: http://www.agoracosmopolitan.com/news/homes/2012/10/18/4606.html

BMO sees strength in commercial real estate through 2013

TORONTO -- BMO Economics says the commercial real estate market -- which has been characterized by cautious growth since a severe market downturn in the 1990s -- will become a draw for investors into next year, thanks to a strong real estate market and low interest rates.

Earl Sweet, senior economist and managing director at BMO Capital Markets, said vacancy rates in the commercial real estate sector are lower than historical norms in many Canadian cities.

"The commercial real estate industry benefits from the healthy condition of Canada's financial institutions, the participation of large, well-funded operators and institutional investors, whose long-term objectives reduce volatility during downturns," Sweet said in a report.

"Higher occupancy -- spurred by steady growth in employment, manufacturing, wholesaling, and retailing -- is reducing office, industrial, and retail vacancies, while lease rates are edging upward."

But the market is likely to grow at a more tempered pace this year and next, noted Sweet, as Canada's economic growth slows to two per cent.

The eurozone crisis and slowing momentum in the U.S. are also expected to dampen investors' appetites in the short term, he said.

In Toronto, a healthy financial services sector, stable consumer and business confidence and an increase in manufacturing helped the commercial real estate sector recover last year.

In Montreal, softer employment in the business and professional services industry helped push vacancies up to 9.2 per cent during the first quarter of 2012, from 8.2 per cent at the end of 2011.

But BMO predicts that recovery in the professional services industry, continued growth in financial services and limited space should stabilize the market.

In Vancouver, the lack of supply has kept commercial property prices high. That, along with low bond yields and volatile stock markets, is driving more investors toward commercial real estate.

Toronto-based real estate owner Brookfield Canada Office Properties (TSX:BOX.UN) says it has seen stability across all of the markets it operates in, especially Toronto, Calgary, Ottawa and Vancouver.

The company, which reported second-quarter earnings on Monday that nearly tripled compared to the same year-earlier period, says it expects that rental rates in downtown Toronto will continue to steadily increase.

"The outlook for future demand of office space remains positive," said Jan Sucharda, president and CEO, during a conference call on Tuesday.

"While uncertainties resulting from the European debt crisis and slowing global economies could impact the future direction of the Toronto market, today we haven't seen any fallout."

The company says its Calgary portfolio is 100 per cent occupied, thanks to a strong oil sector that has created demand for office space there.

The real estate owner is boosting its annual dividend by eight per cent as it reports earnings of $134.4 million, or $1.44 per unit, nearly tripling the $47.5 million, or 51 cents per unit it earned in the same quarter a year-earlier.

The latest quarterly results included a $100-million fair value gain, reflecting a change in the value of its buildings, compared to a gain of $15 million in the same period of 2011.

Source: http://www.ctvnews.ca/business/bmo-sees-strength-in-commercial-real-estate-through-2013-1.891142