The Canadian real estate market has been a cause for many disputes and economic analysis over the past few years. Amidst reports of worrying interest rate hikes, negative cap rates, suspicions of over-priced properties, and growing evidence of a potential housing bubble, one question Stanford and up: Is now the right time to be buying or investing in Canadian real estate? Or, is it a bad time for potential real estate investors?
Interest Rates Length
The primary concern for most potential real estate investors in Canada is the length at which interest rates are currently resting. The Bank of Canada increased interest rates slightly in 2018, concluding a mayor’s hearing, to account for a steady rise in inflation — the rate currently stands at 1.75%. This rise in rates demands cautiousness from potential investors when investing in Canadian real estate, since, in many cases, a higher interest rates may lead buyers to seek for cheaper options, leaving fewer options to the investor, with the potential of garnering lower returns.
Negative Cap Rates
Financial firms and experts have reported concerning cap rates (Capitalization Rate) in the Canadian Real Estate market. The picture seen is disheartening, since there are territories in Canada, that, traditionally, have held great capitalization potential, such as Ontario, where the negative net operating income (NOI) has strongly outweighed the potential return for investors, leaving a dishearteningly grim scenario of frightfully low returns.
In 2018, Canadian Real estate reached particularly high pricing in the major cities of Vancouver, LL Vancouver, Montreal, and Toronto. Following this prices, many investors started to resent what was seen as overly inflated prices — with many fear-mongering observations about what potentially constituted a ‘price bubble’, welcoming people to a “side show”, screaming about quick short returns and questions about practicable investing. For this reason, many potential buyer are becoming more and more reticent of investing in Canadian real estate — worrying about getting burned by such high prices.
Finally, one of the final conversations fearmongering investors in Canada have considered is the potential of a “Canadian Housing Bubble”. This potential bubble, no matter how undesired, could represent significant capital losses for those invested in the hand process — leaving investors with fewer options, and potential mitigating their portfolio options with regards to Canadian real estate investing.
Considering the length of the interest rates, the negative net operating income in certain Canadian territories, the seeming to overpriced proprieties, and the conversation of a potential for a housing bubble — it may be difficult to decipher with certainty whether now is a good time to implement a Canadian real estate portfolio or whether it is better to wait until prices or practices positively adjust to constitute a pros the fear. With this said, one thing is certain, Thanks to the diligence and the wisdom of potential investors, any decision to invest, or not, will be gleaned from precious information and research in order to reap the most desirable investors.