Looking for an attractive investment in a low interest-rate environment?October 14, 2020
The Canadian interest rate environment is in uncharted territory. Not only are rates at historic lows, but they are expected remain there for the foreseeable future. In September, while the Bank of Canada saw some economic recovery and expects the recuperation phase to be “slow and choppy,” it decided to maintain interest rates at 1/4 per cent as the COVID-19 pandemic continues.
When considering the effect that low interest rates have on investments, the impact varies. For instance, fixed-income investors don’t typically prefer low interest rates because returns on bonds, savings accounts and certificates of deposit are low, which can reduce one’s cash flow. Stock market investors, on the other hand, may prefer low interest rates. With lower borrowing costs, companies can grow and expand more quickly, leading to greater profits for their investors.
An investor’s desire for high returns has not changed, but attractive yields are no longer coming from fixed-income investments. If, on the other hand, one invests in stocks to achieve higher returns, they may be subjected to volatility. That level of volatility can often increase during uncertain times, like the current pandemic and US elections.
With low interest rates affecting bond markets and volatility in the markets impacting stock values, it’s definitely a stressful time to be an investor.
If you are seeking income-producing investment vehicles that provide attractive returns and a safe haven for your money, income-producing commercial real estate, such as the multi-residential apartment sector, can offer both stability and steady returns.
Even though interest rates are expected to remain low for some time, the Canadian apartment sector stands to benefit. The multi-residential apartment sector thrives with lower interest rates because of its strong fundamentals and resilience in economic downturns, resulting in stable income and property appreciation.
Over the last decade, the Canadian rental market, in general, has been both resilient and vibrant, with solid returns from tight housing markets in some of Canada’s largest cities. The apartment sector has been fueled by Canada's status as an immigration hotspot, as well as, numerous other factors, including housing affordability, limited new development and demographic makeup, to name a few.
Often during economic downturns, the apartment sector performs well, as tenants refrain from moving due to potential and uncertain employment concerns. Another consideration is the fact that necessities-based sectors perform well during times of economic hardships. When you think about it, everyone needs food and shelter, despite the economic circumstances. The demand for housing translates to potential rising rents, which means that reliable income streams from multi-residential real estate is likely to grow. As a result, appreciating property values provide the apartment sector with a significant course for growth.
Interest rates are expected to stay drastically low for years to come as central banks work to stabilize their countries’ economies in the fallout from the coronavirus pandemic. Income-producing commercial real estate, like the multi-residential apartment sector, can provide stable and regular income, paired with a low correlation to the stock market, making it an attractive option for those looking to make a smart choice with their money in today’s challenging investing landscape.