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.
Real estate has generally been a fruitful investment category. In February 2022, Canada experienced record high single-family home prices, showing an increase of 20% compared to the same time in 2021, according to the Canadian Real Estate Association. The second quarter of the year (April – June) however, started to worry some investors as single-family house prices dropped by 7.7%1.
Is real estate still a good investment?
What’s important to remember is that not all real estate is created equal. Though the type of real estate most often referenced in the media, ‘single-family’ is not the only type of real estate. Even in times when housing prices fell, multi-residential apartments have maintained positive returns. From June 2008 to March 2009 when house prices fell by -9.3%, Private Canadian Apartments2 showed a +4.3% return and from June 2017 to December 2018 when house prices fell by -10.2%, Private Canadian Apartments showed a +17.9% 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
“Recently released 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. Unlike previous generations, according to the RBC Spring Housing Poll, 36% of non-homeowners under 40 are no longer planning to buy a single-family home and 62% of Canadians think that most people will be priced out of the housing market in the next decade. Rentals are, and will be, more important than ever before.
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. In October 2020, the vacancy rate for purpose-built rental apartments was 2.6 per cent. That number shrunk to 1.2 per cent by October 2021,” reports CTV News. 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.
Equiton’s Apartment Fund has not had a single negative month since its inception. Our portfolio is comprised of 29 properties in 15 communities across Ontario. These properties provide much-needed housing in key locations, like Toronto, Mississauga and Hamilton, 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.
Though lucrative, multi-residential is still an unfamiliar asset class for many investors. Contact Equiton today to learn more about our private real estate investment solutions and how multi-residential apartments can benefit you and your portfolio.
1 The Canadian Real Estate Association, MLS® Home Price Index (HPI) MLS® – Single-Family Homes. Accessed August 28, 2022
2 MSCI/REALPAC Canada Quarterly Property Fund Index- Residential / MSCI Real Estate Analytics Portal– Accessed August 28, 2022