The housing market has been a hot topic this year. There’s been no end to speculation about what’s in store. Investors in particular wish they had a foolproof way to predict the right time and the right kind of real estate in which to invest.
Canadian real estate is in the middle of a price correction, and single-family homes have been hit hardest. A benchmark home price fell to $794,000 in November, dropping 1.4% (-$10,900) in the month. Prices as of January 2023 are now 17.8% (-$172,200) lower for the segment compared to the peak. Across the country, no market remains at its all-time high, and many are much lower.
Is real estate still a good investment?
What's important to remember is that not all real estate is created equal. Media sources often refer to single-family real estate, focus on single family homes when discussing the real estate market and pricing, but it's not the only type. Even in times when housing prices fell, multi-residential apartments have maintained positive returns. From June 2008 to March 2009 when house prices (1) fell by -8.9%, Private Canadian Apartments (2) showed a +1.8% return and from March 2022 to September 2022 when house prices fell by -15.4%, Private Canadian Apartments showed a +2.6% return. Furthermore, unlike single-family homes, Private Canadian Apartments haven’t had a negative return in 35 years and are not subject to the swings of the stock market.
The rental market in 2022
“Data by the Toronto Regional Real Estate Board (TRREB) has revealed that the average rent for a one-bedroom apartment, the most common type of rental abode, increased by 20 per cent year-over-year in the second quarter of 2022. The rents for two-and three-bedroom apartments increased by 15.3 and 12.8 per cent, respectively,” states the Financial Post. With rents rising across the region and rental units in such high demand, multi-residential apartments are a hot commodity. As interest rates climb, those looking to purchase homes are waiting longer than usual or choosing not buy at all, which is causing greater demand for rental units.
According to a recent report by RBC, Proof Point: Is Canada becoming a nation of renters?, in the last decade, renters have increased three times faster than homeowners, despite two-thirds of Canadian households owning their home. While younger Canadians and urbanites still make up the largest group of renters, the trend has been widespread across age groups and areas.
"While home sales and prices dominated the headlines in 2022, the supply of new listings continued to be an issue as well. The number of homes listed for sale in 2022 was down in comparison to 2021. This helps explain why selling prices have found some support in recent months. Lack of supply has also impacted the rental market. As renting has become more popular in this higher interest rate environment, tighter rental market conditions have translated into double-digit average rent increases," said TRREB Chief Market Analyst Jason Mercer.
Rentership is now growing most rapidly among baby boomers and in smaller cities. As affordability pressures, demographic forces, and behavioral preferences drive this change, it will continue to accelerate.
Multi-residential is the future and the future is now
Multi-residential is not simply real estate; it’s a business and a tangible asset that increases in value over time. Private Canadian Apartments have historically outperformed other real estate categories as well as most public investments with limited volatility. It is an essential sector and fulfills the most basic human need of securing a place to live.
In Canada, the average number of housing units per 1,000 residents is 11% below other G7 Countries. Canada’s housing supply has not kept up with its growing population let alone with the 1.3 million immigrants the government plans to bring in over the next three years. This places even greater pressure on the rental market. “Of the 37 census metropolitan areas surveyed in CMHC’s report, 21 of them saw a decrease in 2021 vacancy rates compared to the year before. All Canadian centers (with a population of at least 10,000) experienced a 3.1% average vacancy rate for purpose-built rental apartments in October 2021, a statistically insignificant change from 3.2% in 2020. With the supply-demand imbalance, fulfilling the need for housing is becoming more and more difficult as the unaffordability in the single-family housing market translates to more people renting for longer and in different life stages. Multi-residential apartments are an attractive investment because of the built-in, perpetual demand for housing. Further, annual rent increases provide an excellent hedge against inflation.
Introducing a new way to grow your wealth
As a leader in private real estate investments, Equiton has a variety of alternative investment solutions including two private REITs (Apartment Fund and Income & Development Fund) and now offers exclusive access to an exciting new development project that’s anticipated to generate a targeted annual net return of 20% (average based on 5.3-year project term).
Equiton’s Apartment Fund has not had a single negative month since its inception (May 2016). Our portfolio is comprised of 32 properties in 17 communities across Ontario and Alberta. These properties provide much-needed housing in key locations, like Toronto, Mississauga, Hamilton, and Edmonton and have been optimized to create value for our investors as well as appealing homes for our tenants. Now is the perfect time to invest in the right type of real estate.
1) The Canadian Real Estate Association, MLS® Home Price Index (HPI) MLS® - Single Family Homes – Accessed November 3, 2022
2) Private Canadian Apartments, MSCI/REALPAC Canada Quarterly Property Fund Index- Residential / MSCI Real Estate Analytics Portal – Accessed November 3, 2022