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Real estate professionals grow anxious over prospects

Steve Ladurantaye – Globe and Mail

Canadian real estate professionals are increasingly anxious about the sector’s prospects over the next year, as a sector that has led the country’s economic recovery shows signs of slowing along with the broader world economy.

Comment: WHAT? Says who? I do not know a single real estate agent who is concerned. The market is roaring and getting better every day. Mortgage rates will stay low at least until 2013. Condos keep being built and keep being sold. Rental vacancies are under 2% providing tons of tenants for investment properties. Immigration pumps 100,000 people into the GTA every year. Unemployment is still low – do not let the current stories about it increasing fool you, it went from 7.2% to 7.3%. The Bank of Canada head is now the head of the world bank – the biggest vote of confidence in our economy if ever there was one. Heck, the Leafs are even in first place! So what exactly is wrong and who is worried?

Canadian respondents to an annual PricewaterhouseCooper survey worried the job market would slow, leading to weakening confidence in the country’s housing sector. Meanwhile, commercial deal flow could be constrained as buyers find the market stalled by lack of willing sellers.

Comment: So some people worry that things MIGHT slow. But not real estate agents in particular. And they only said maybe. Right…

“Canadian consumers who have been on a spending and home-buying spree, encouraged by low interest rates, could see their self-assurance ebb and job growth has decelerated in response to all the noise about European and U.S. debt woes,” said Lori-Ann Beausoleil, the consulting firm’s Canadian real estate leader. “Sensing a general slowdown, respondents to our survey are taking a ‘better-to-be-cautious’ investment approach for 2012.”

Comment: Again, consumers COULD see their confidence drop. Which means they also COULD see their confidence rise. Uh huh…

An annual report to be released Tuesday by PricewaterhouseCoopers asked 950 industry representatives in Canada, the United States and Latin America what they expected to happen in the 2012. It was the 33rd year for the Emerging Trends in Real Estate 2012.

The report quotes several industry players, but it doesn’t name names. The Canadian respondents said “a big problem for the banks and large public pension funds is where to invest capital in the face of limited domestic opportunities.”

That would drive foreign investors to look to more distressed markets for deals, the report suggested, such as the United States.

While the report doesn’t strictly look at residential housing, it does strike a slightly alarmed tone about the country’s condominium market. Respondents felt that the sector was dominated by foreign investors, an anecdotal claim which has never been proven empirically.

Comment: Oh… so the report will not name names and does not concentrate on real estate? So why are we saying that it does? Sounds like a lot of “sky-is-falling” spin by the doomsaying media again.

“Buyers in Vancouver and Toronto skew toward Asian investors and speculators, who rent most of the units,” the report states, followed by an anonymous quote about how this may not be sustainable.

Comment: No kidding, this is not even something that is verifiable. Yes, some condos are bought by Asian investors, but to say that they represent a large portion of the 90,000 some-odd sales in the GTA this year is beyond ludicrous and borders on the insane and/or just plain stupid.

The report goes on to say that the condo market is unlikely to actually crash, thanks to an influx of immigrants to major centres and a lack of new rental stock from coast-to-coast.

Comment: Right, so the Toronto condo market is not going to crash. We all know that. I guess the report is just saying that the possible Asian investors might – or might not – see a lowering of their confidence. Wow… I know I am scared!

The survey concludes with investment tips for anyone looking to get into the Canadian market:

Hold those Trophies: Husband cash flows, astutely manage properties to control costs and retain tenants and consider retrofitting with energy-saving technologies to ensure future competitiveness.

Buy or Hold Infill Land: Intensification policies will continue to propel land values in the gateway cities: available sites look like gold. Prices that may appear “crazy” today could seem like bargains tomorrow. Move-back-in-trends work against outer suburbs and disconnected suburban areas.

Don’t Take Chances: There is limited opportunity to score big investment gains and the economy enters a slower growth mode. To be more opportunistic, investors could partner with hands-on operators to take under-used class B-/C apartment buildings and improve NOIs.

Development Turn More Wary: The big-city condo surge looks unstoppable but maybe it’s time to turn a bit more cautious. The investor wave could give out, and pricing may need to take a breather.

Be Selective: Outside of condos, other sectors offer few opportunities beyond a choice office building in larger cities like Vancouver and Montreal. Mixed-use buildings get a boost across all major markets as retail developers work on infill projects in tandem with condo construction. New apartments make sense in markets where condo construction is muted. Hotels go nowhere.

Property Sectors Buy or Hold

Apartments: Continuing immigration will fire steady demand.

Class A Offices: These are irreplaceable assets in the downtown cores.

Fortress Malls and Grocery Anchored Retail: In prime suburban districts with barriers to entry, these properties will continue to excel.

Industrial Properties in Toronto: Development opportunities exist for converting well-located low-ceiling warehouses into big-box formats.

Hotels: It’s no time to sell.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.

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