One in Four Canadians Plans to Buy Investment Property in Next Five Years
Approximately 11% of Canadians currently invest in residential real estate, with more than half of current investors saying they are likely to purchase an additional residential investment property in the next five years, according to a survey by real estate firm Royal LePage. The survey, conducted by Leger, said 64% of residential real estate investors own one property, while 32% own two or more.
“There are more small business landlords in the country than previous data would have indicated and considerably more people interested in becoming property investors,” Royal LePage chief executive Phil Soper said in an interview. “So it’s clearly a product of the time and the economic environment of the perceived opportunity.”
Since their research on real estate investors is new, there is no baseline to compare it to, but Soper said the numbers appear to be higher than he would have expected.
The report said that 26% of all Canadians plan to buy an investment property before 2028, with 23% of Canadians who do not own a residential investment property saying they are likely to purchase one in the next five years. “Despite higher borrowing costs in today’s post-pandemic real estate environment, the aspiration to own property for the purpose of investment remains strong,” it said.
Investors understand that there’s a critical housing shortage in the country, and realize Canada is welcoming half a million new Canadians a year — a figure that’s likely to remain high or even grow, Soper said.
Another issue that’s driving people towards investing in real estate, he said, is that rents are at an all-time high and have leapt forward at a rate even outpacing the high level of inflation.
“The combination of supply shortage, high rents (and) more homeowners looking for rental to put a roof over their heads has attracted more people to the sector,” Soper explained.
The survey found the opportunity for their property’s value to appreciate over the long term was the top factor investors consider when buying property. Positive cash flow on a monthly basis ranked second, and the low maintenance and variable expenses was third. 44% of investors owned a single-family detached home, while 37% invested in condominiums or apartments.
Soper said with the stock market being volatile and producing negative returns in many asset classes over the last years, investors have taken alternative investments into consideration. Young people in particular, he said, who might have been been thinking about investing in tech companies, have had a change of heart as the sector has been hit hard over the past months.
The study said the increased cost of borrowing has had a significant impact on variable-rate mortgage holders over the past year, with more than 30% of investors in Canada having considered selling an investment property as a result.
Soper said that while that figure suggests there will be some churn in the pool of investors, it means the majority are not considering selling and that the sector could thus see material growth. “Clearly, the big economic drivers at work here are leaning in favour of this particular investment class,” he said.
The study, completed online between March 2 to 17, 2023, surveyed 1,003 Canadian adults who own one or more residential investment properties. It said no margin of error can be associated with the web panel. The percentage of Canadians that owned at least one investment property, including renting out part of their home, was determined from an online survey of 10,021 respondents.
Earlier this year, data released by Statistics Canada showed that at least 20% of residential real estate was owned by investors at the beginning of 2020 in each of the five provinces tracked: Nova Scotia, New Brunswick, Ontario, Manitoba and British Columbia.
Source: Financial Post
Building Permits, March 2023
The total monthly value of building permits in Canada advanced 11.3% in March to $11.8 billion, led by sharply increasing monthly non-residential growth (+32.0%). On a constant dollar basis (2012=100), the total value of building permits went up 12.2% to $6.9 billion.
Non-residential permits ramp up as sector reaches record high
The total monthly value of non-residential permits sharply increased 32.0% to a record-high $5.2 billion, with 10 individual non-residential projects valued at over $100 million each. The largest project of the month was the $570 million new General Motors and POSCO Chemical cathode active materials facility in Bécancour, Quebec, which led the value of building permits in the industrial component to sharply increase by 16.7% nationally. This project is linked to the Canadian Critical Minerals Strategy, for which further major investments in industrial projects are anticipated.
Commercial (+41.5%) and institutional (+29.5%) construction intentions also posted significant monthly gains to support a record-high month for the non-residential sector.
Residential construction intentions stall
Following a promising February, March saw the value of new residential permits taper off (-0.9%) to $6.6 billion. Nationally, permits for 21,400 new dwellings were issued in the month.
British Columbia continued to sharply increase with strong construction intentions (values up +30.9% or + $321.9 million) in March, concentrated in metropolitan high-rise multi-dwelling developments. The four Atlantic provinces collectively also had notable monthly gains in multi-dwelling (+40.6% or +$48.1 million) and total residential (+14.0% or +$39.5 million) permit values.
These gains were nationally offset by declines in five provinces. Ontario (-8.1% or -$246.6 million) weighed down the sector the most, while Saskatchewan (-27.0% or -$12.7 million) posted the largest proportional decline of the month.
First quarter of 2023 ticks upward, led by non-residential building permits
The total value of building permits in the first quarter of 2023 gained 4.8% from the last quarter of 2022 to $32.4 billion, ending three consecutive quarterly declines. On a constant dollar basis (2012=100), the total quarterly value of building permits increased 3.4% to $18.9 billion.
The commercial component (+17.2%) led the quarterly growth, much of which was from building permits issued in March. Overall, the non-residential sector expanded 16.1% to a record-high $13.0 billion in the first quarter of 2023, greatly exceeding the previous quarterly record of $12.4 billion. This coincided with the Bank of Canada’s decision to pause interest rate hikes, the first reprieve since initial hikes started in March 2022.
However, this signalling is yet to be reflected in residential construction intentions, which declined 1.6% to $19.4 billion, sliding for the third consecutive quarter. Declines in the value of residential permits were posted in six provinces which more than offset gains in Ontario, Manitoba, Nova Scotia and Prince Edward Island. Manitoba posted the most notable quarterly gains in both the value of residential permits (+27.5%) and the number of new dwelling units created (+58.7%), as their quarterly population growth simultaneously edged out the national average.
Source: Statistics Canada
Housing Starts Increased in April
Canadian housing starts rose 22% in April compared with the previous month as groundbreaking increased on multiple unit urban homes, data from the national housing agency showed.
The seasonally adjusted annualized rate of housing starts rose to 261,559 units from a marginally revised 213,780 units in March, the Canadian Mortgage and Housing Corporation (CMHC) said. Economists had expected starts to rise to 224,600.
Demand Continues to Outpace Supply as Canadian Home Sales Jump in April
Statistics released by the Canadian Real Estate Association (CREA) show national home sales jumped by double digits on a month-over-month basis in April 2023.
- National home sales surged 11.3% month-over-month in April.
- Actual (not seasonally adjusted) monthly activity came in 19.5% below April 2022.
- The number of newly listed properties edged up 1.6% month-over-month but remain at a 20-year low.
- The MLS® Home Price Index (HPI) climbed 1.6% month-over-month but was down 12.3% year-over-year.
- The actual (not seasonally adjusted) national average sale price posted a 3.9% year-over-year decline in April.
Home sales recorded over Canadian MLS® Systems posted an 11.3% increase from March to April 2023, foreshadowed by smaller back-to-back gains recorded in February and March. Following the trend seen in recent months, the sales increase was broad-based but once again dominated by the B.C. Lower Mainland and the Greater Toronto Area (GTA). The actual (not seasonally adjusted) number of transactions in April 2023 came in 19.5% below April 2022, a markedly smaller decline than those seen over the past year.
“Over the last few months, there have been signs that housing markets were going to heat back up this year, so it wasn’t a surprise to see things take off after the Easter weekend, which often serves as the opener to the spring market,” said Larry Cerqua, CREA’s 2023-2024 chair. “The issue going forward is not new: demand is once again returning at a scale that is outpacing supply.”
“With interest rates at a top, and home prices at a bottom, it wasn’t all that surprising to see buyers jumping off the sidelines and back into the market in April,” said Shaun Cathcart, CREA’s senior economist. “Supply, on the other hand, has been sluggish, hence the price gains from March to April seen all over the country. Looking ahead, the first week of May did see a bit of a burst of new supply, suggesting some of those April buyers were existing owners now looking to sell their current homes. That could make for the kind of virtuous circle that might ultimately get more first-time buyers into the ownership space this year.”
The number of newly listed homes edged up 1.6% on a month-over-month basis in April; although, the bigger picture is that new supply remains at a 20-year low.
With sales gains vastly outpacing new listings in April, the sales-to-new listings ratio jumped to 70.2%, up from 64.1% in March. The long-term average for this measure is 55.1%
There were 3.3 months of inventory on a national basis at the end of April 2023, down half a month from 3.8 months at the end of March. The long-term average for this measure is about five months.
The Aggregate Composite MLS® Home Price Index (HPI) climbed 1.6% on a month-over-month basis in April 2023 – a large increase for a single month. It was also broad-based. A monthly increase in prices from March to April was observed in the majority of local markets.
The actual (not seasonally adjusted) national average home price was $716,000 in April 2023, down 3.9% from April 2022, but up $103,500 from January 2023, a gain owed to outsized sales rebounds in the GTA and B.C. Lower Mainland. Excluding the GTA and Greater Vancouver from the calculation cuts more than $144,000 from the national average price.