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Housing Attracting More Investors
But experts warn not to count on capital appreciation
Booming housing prices are prompting many Canadians to invest in property, but experts caution that any gains in the near future likely won't match those of the last few years.
One person in six is planning to buy an investment property in the next 12 to 24 months, suggests a report from the Re/Max real estate company. The results come from a national survey of 1,200 homeowners conducted in December.
"The promise of continued upward trending in housing values is a major factor influencing investors, particularly in British Columbia and Alberta," said Elton Ash, regional vice-president of Re/Max for Western Canada.
"Over the past five years, residential prices have appreciated close to 10 per cent on average, nationally. That's a fairly impressive return on investment."
The report also found that potential investors were fairly young. About 43 per cent of those intending to invest in property in the next two years were under age 40.
"That shows a generation that is blinded by the real estate market and its major ascent over the past seven or eight years," commented Benjamin Tal, senior economist at CIBC World Markets, adding that stock markets are also performing well.
"There is nothing wrong with real estate investment. In my opinion, it is usually a solid investment," Tal said. "But if one counts today on capital appreciation as the main source of money, I think many people will be disappointed.
"I don't think in the next three to five years we will see the same rate of increase as the past few years."
The results of the Re/Max poll are considered accurate within 2.5 percentage points, 19 times out of 20.
An earlier report by real estate firm Royal LePage forecast a six-per-cent average increase in Canadian house prices this year. Calgary and Edmonton are expected to see increases of eight or nine per cent, but prices in Toronto, Montreal and Ottawa will likely rise by less than five per cent, Royal LePage said.
Nationally, the number of homes sold is expected to drop.
"We've been climbing this mountain. We reached the top in 2005 and now we're on a very high plateau," said Phil Soper, CEO of Royal LePage Real Estate Services.
Both Ash and Tal said young real estate investors today are more educated, with Tal pointing to the rising popularity of real estate investment clubs that meet once a month to swap advice.
The Re/Max survey found that most investors had some post-secondary education and 14 per cent had a master's degree or a professional degree.
Close to 30 per cent of the survey's respondents already owned one or more investment properties, and about 18 per cent said real estate represents more than 51 per cent of their total investment portfolio, Re/Max said.
Women accounted for 16 per cent of those who said they intend to buy an investment property, while 10 per cent of the prospective near-term investors were single.
Corporate executives and entrepreneurs are expected to be the most active, representing 25 per cent and 19 per cent of investors, respectively.
"Real estate speaks to a broad range of purchasers," said Michael Polzler, regional director of Re/Max for Ontario and Atlantic Canada.
"According to reported household income levels, today's investors are solidly within the middle class, with one in five earning $50,000 to $60,000 a year, and one in three earning $75,000 to $100,000."
Earlier this month, the Tories unveiled a promise to eliminate the capital gains tax for individuals who reinvest profits within six months.
Many experts are now saying the new Conservative government won't be able to move quickly on such a measure, which would apply to capital gains from selling real estate investments, because of its complexity.
But Ash said that if it is implemented, it will add more fuel to the real estate investment fire.
Tal is among those economists who believe Stephen Harper's new government won't be able to eliminate the capital gains tax in the near future.