As we await a rebound in the Canadian property market after welcome reductions to the interest rate, many investors are sizing up the market to extend their portfolio.
Capital appreciation is a primary motivator as investors expect property values will soon rise as buyers access cheaper cash from lenders.
Supporting the case for investment is the trend in rents across Canada. They’re growing at 5.7% annually, according to Statistics Canada, which calculates the Consumer Price Index. That’s twice the overall rate of inflation, which stands at 2.5%.
And that inflation number is critical. After two years of skyrocketing, post-Covid inflation, prices are now under control and will encourage of the Bank of Canada to continue its strategy of rate cuts to stimulate economic activity.
If you’re thinking about investing in property and believe in the medium- to long-term potential for wealth growth, it’s important to understand some of the underlying factors influencing rental prices.
Many investors have been benefiting from the national shortage of rental accommodation, which has caused rents rise by steeply. While it’s tempting to see these post-Covid years as an aberration, rents went up 20% in the five years from 2014. Today, rents are up 8.5% year-over-year.
So what’s driving the rental market right across Canada? Below, we look at the market dynamics.
We recommend any investor seek independent advice from a licensed financial advisor before making any decision.
- Supply and Demand: This foundation principle of economics plays out in the property sector. Put simply, there’s an insufficient number of properties to meet the demand of renters.
- Vacancy Rates: The latest figures from the Canada Mortgage and Housing Corporation (CMHC) suggest the national vacancy rate is 1.5%.
- The Stats: While the number of households have grown 21.5%, according to Statistics Canada, there’s only been an increase of 8.4% in the number of those who own their own homes.
- Flow-on Effect: Fast-rising rents have pushed our inflation rate higher, and that has had an impact on the interest rate and ensuing mortgage costs. Investors have responded by further increasing rents to meet their own costs. It became a vicious cycle in the aftermath of the pandemic. In August, rents were 8.9% higher year-on-year but rents have probably hit a peak.
- Tapering down: Rents are levelling out at record-highs. Only Quebec City (+1.89%) and Edmonton (+0.6%) saw month-on-month rent increases in August.
- Local Markets: Canada’s rental sector is not one market but thousands of micro-markets that have their own dynamics and price trends. Talk to trusted agents and your financial adviser as you scope out areas that might be suitable for your investment.