Canada Mortgage and Housing Corporation released some good news early in September that indicated, despite parts of Canada slipping into recession, the country’s housing market remains strong.
Housing starts in August jumped to 216,924, up from 193,253 the month before, and considerably higher than the 190,000 starts forecast. All told, this was the strongest month for housing starts in three years.
Apartments have contributed to this boom. Residential building permits rose by 8.7 per cent in August, far higher than the number of building permits issued for other forms of construction.
A big part of this increase was in multi-residential dwellings. Of August’s 216,924 housing starts, 119,478 were in urban multi-unit projects.
Even in Alberta, which has been hit the hardest by falling oil prices, housing starts increased from July to August.
This performance echoes the performance of the purpose-built rental apartment industry seven years ago when it weathered the 2008 recession and outperformed all other sectors in the real estate market. One has to wonder as to the secret of the rental apartment industry’s success.
Wise to be prudent
As investors, we should never get cocky. It’s wise to be prudent when facing a tricky economy. In other articles, I’ve talked about looking at your apartment portfolios, selling the outlying poor performer and reinvesting the sales in your other properties.
However, it takes a lot to hamper an industry which is still reaping the rewards of high demand, low supply and favourable demographics.
While some pundits have wondered at the ongoing strength of the condominium industry, wondering if speculators are building a real estate bubble in major centres, this ignores the fact these units are occupied and the investors are receiving a decent income from the people who actually live in them.
With vacancy rates at historically low levels, that ongoing and almost guaranteed income is a solid lifeline that can get many investors through shaky economic times. Condo developers are increasingly aware of this and some are starting to cut out the middlemen, changing their condo towers into purpose-built rental apartment towers.
It’s time to build new apartments
For this reason, I continue to say it’s still time for Canada to build new apartments. The demand for purpose-built rental housing isn’t going away, especially as young millennials increasingly turn away from suburban home ownership and gravitate towards rental living in Canada’s urban centres.
Interest rates are likely to remain low for the foreseeable future, which will also help apartment capitalization rates remain at historically low levels.
Building an apartment building is different than building a condo. This is one reason why condo developers have been slow to switch over to developing apartments.
Even though the condo marketplace has been a great source of new apartment rentals, thanks to condo unit owners renting out their space, the condo building is still a source of fast revenue from a quick sale. Apartment buildings are long-term investments offering steady incomes.
It takes a different mindset to invest in an apartment’s long-term income stream, and there are added challenges of having to lease up and manage an apartment building. Fortunately, for developers thinking of making the leap to new apartments, there are consultants and management agencies who can help.
Look for people with experience in the purpose-built rental apartment industry who can advise you on all aspects of apartment development, from finding the best piece of land to figuring out financing and handling the lease-up and managing tenants.
These consultants can also advise on what to do with your building once it’s built: either hold it to receive the ongoing income or sell it to an eager investor.
Experienced consultants are only a phone call away.
Derek Lobo is the founder and CEO of SVN Rock Advisors Inc., a real estate brokerage with over 30 years of experience in helping investors make the most out of buying, selling, and renovating purpose-built apartment buildings. Learn more about SVN Rock Advisors Inc., Brokerage on their website at www.SVNRock.ca.