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Wednesday, February 20, 2013

2013 is primed to be the year of the multi-family property

 

 2013 is primed to be the year of the multi-family property, according to a new report:





http://canadianrealestatemagazine.ca/expert-advice/commercial/item/1508-2013-the-year-of-the-multi-family-property


2013 is primed to be the year of the multi-family property, according to a new report, tracking Canadian investment trends, increasingly influenced by an iffy global economy.


"The strength of the sector will be fuelled by strong demand drivers and constrained supply characteristics," reads the study by Morguard Corp., a publicly traded property management firm. "Negligible new construction will also act as a booster of generally tight conditions in the rental market."
The forecast anticipates occupancy rates hovering close to the 98.0% mark nationally, with rents will continuing to rise,although capped to some degree rental control legislation.
"The multi-family residential rental sector will see largely stable and healthy performances in the coming year, as was the case through all of 2012," Morguard continues. "Steady growth in property values over the past few years may ease in 2013, however values will continue to range at the peak."
That analysis jives with that of other market watchers, who point to inmigration and scarcity of product for the bullishness in the marketplace.
Uncertainty around alternative investments -- stocks, bonds, etc -- is also driving demand for multi, although new-build construction is still a daunting propostion for many smaller investors fearful of losting a cap rate advantage.
Other key projections from Morguard include:

  • Property values will continue to range at the cycle peak supported by robust investment demand, low interest rates, and historically low long-term bond yields
  • Income performance strength will remain a fixture over the near term as rental markets in all sectors post strong occupancy characteristics, positive demand trends, and modest increases in rental rates
  • Robust purchasing activity in the investment sector will continue to feature a significant REIT sector component, however pension funds and private capital will remain active
  • Conservative construction volume in the office and industrial sectors over 2013 will ensure rental market conditions improve however, as 2013 ends risk levels will rise with the increase in office development in Vancouver, Toronto and Calgary

Excellent Article on the housing market in Canda

New housing numbers point to soft landing
Popular catastrophist scenario appears increasingly unlikely
Written by Jay Bryan, Montreal Gazette

MONTREAL — For more than a year, there have been two competing narratives about the future path of Canada’s high-flying housing market: total collapse and moderate decline. The moderates, if we can call them that, still seem to me to have the better argument, especially when you consider the unexpectedly upbeat housing resale figures last month.
Friday’s report from the Canadian Real Estate Association demonstrates that national home sales continue to be significantly lower than those of a year ago, but that virtually all of this decline happened abruptly last August, reflecting a tough squeeze on mortgage-lending conditions in July by Finance Minister Jim Flaherty. Since then, however, there’s been no further month-to-month downtrend, notes CREA chief economist Gregory Klump.
Prices, which don’t necessarily track sales right away, have also weakened, but less. While sales are down five per cent from one year ago, average national prices are actually up by three per cent, as measured by the CREA Home Price Index. However, this year-over-year price gain has slid gradually from the 4.5 per cent recorded in July.
What’s the bottom line? In my opinion, it’s that the catastrophist scenario detailed not just by eccentric bloggers but also in national newspapers and magazines, looks increasingly unlikely.
That’s not to say this outcome is utterly impossible. At least one highly regarded consulting firm, Capital Economics, has been predicting for two years that this country faces a 25-per-cent plunge in average home prices. This is the kind of drop — almost comparable to the 30-per-cent-plus crash in the U.S. — that would probably trigger a bad recession, especially in today’s environment of subdued economic growth.
David Madani, the economist responsible for this frightening prediction, understands the housing numbers very well, but he simply doesn’t share most other analysts’ relative equanimity about what they mean.
Yes, Canada’s banks are financially stronger and more prudent in their lending than their U.S. counterparts, he acknowledges, and yes, there’s little evidence of the fraud and regulatory irresponsibility that worsened the U.S. catastrophe, but he sees the psychology of overoptimistic buyers as uncomfortably similar. What looks like enormous overbuilding of condos in the hot Toronto market help to make his point, as does the still-stratospheric price of Vancouver housing.
Madani certainly has a point, but the countervailing evidence seems even stronger.
A key example is the behaviour of Canada’s housing market over the past six months. The latest squeeze on mortgage lending, the fourth in five years, is also the toughest, points out economist Robert Kavcic of BMO Capital Markets. It drove up the cost of carrying a typical loan by nearly one percentage point, or about $150 a month on a $300,000 mortgage. And as this shock was hitting the housing market, Canada’s employment growth was slowing.
In a market held aloft by speculative psychology, it seems very likely that such a hammer blow would bring about the very crash that pessimists have been predicting. Instead, though, the market reacted pretty much as it had during previous rounds of Flaherty’s campaign to rein in the housing market, notes Derek Burleton, deputy chief economist at the TD Bank.
Sales dropped moderately, but the decline didn’t feed on itself as it would in an environment of collapsing speculative hopes. Instead, the market proved to be rather resilient, with sales plateauing and then actually rising a bit in January. Burleton, along with Kavcic and Robert Hogue, an economist at the Royal Bank who follows housing, believe that we’ve already seen most of the market downside that will result from Flaherty’s move.
This doesn’t mean that the market is out of the woods. It’s still overvalued, not hugely, but by something like 10 per cent, Burleton estimates. But moderate overvaluation can persist for years unless the market is hit by some shock to incomes or interest rates.
While there’s no agreement on the path prices take from here, some of these analysts think they’ll drift down slowly, maybe three to eight per cent over a few years. At the same time, rising take-home pay will be shrinking the amount of overvaluation, creating a more sustainable market. Let’s hope they’re right.

Read more: http://www.montrealgazette.com/homes/Bryan+housing+numbers+point+soft+landing/7973381/story.html#ixzz2LT23iQ98