The large rent hikes Canada has experienced since the pandemic are finally coming off the boil.
Rents are not falling but the rate of growth is tapering down, slowing to 5.4% from a historic peak of 8% in mid-2023.
That means investors have not only enjoyed record levels of rental income but will continue to do so.
The 5.4% growth rate is remarkably healthy when compared with Canada’s current inflation rate of 1.9% So, the opportunity for investors remains extremely strong.
The situation for investors is further bolstered by five successive interest rate cuts that have taken our cash rate to 3.25% – a substantial fall from its post-Covid peak of 5.25%.
However, you must be careful where they invest. We’re seeing unemployment rising to 6.8%, and that means there’s a declining demand for rental properties. For purpose-built apartments, the vacancy rate has increased to 2.2% from a record low 1.5% in 2023. Historically, vacancy rates hover around the 3% mark.
Another factor pushing vacancy rates higher is a recent spate of newly-released apartment blocks across Canada, according to a new report from the Royal Bank of Canada’s (RBC) economic division.
RBC has found rent growth easing most significantly in the most expensive provinces, Ontario and British Columbia. However, in both provinces, apartment turnover rates were the lowest in the country.
Toronto recorded the slowest rental growth of any city in 2024, registering just 2.7%.
The RBC says in its report: “It’s worth noting the increase in average rent was almost entirely driven by a small segment (6.4%) of newly-available (turned over) units, where average rent was up 40%. The annual rent increase for non-turnover units was just 0.9%.”
Looking ahead to 2025 as a whole, the RBC predicts: “Lower immigration levels and soft labour markets are expected to ease rental demand.
“This trend may not persist over the medium-term. Population growth and employment prospects are expected to pick up steam in the years ahead after a brief cooling period.
“To prevent a return to the tight conditions of 2023, Canada must sustain — if not accelerate — the pace of rental construction. Maintaining this momentum will be essential to achieve a more balanced rental market and ensure long-term affordability.”
The RBC’s considered view suggests investing in property remains an attractive proposition.
Below, we offer five fundamental principles to start your property portfolio or expand it:
Market Analysis: Thoroughly research your target areas. Understand vacancy rates, average rents, property taxes, and recent sales trends.
Rental Demand: Identify neighbourhoods with strong rental demand, driven by factors like proximity to employment centres, schools, amenities and transportation.
Property Type: Choose a property type that aligns with your investment goals and risk tolerance. Options include single-family homes, condos, townhouses and multi-unit buildings.
Investment Strategy: Determine your investment strategy – long-term hold for appreciation, short-term rentals, or a combination? Each strategy has different implications for property selection and management.
Budgeting: Develop a budget that includes not just the purchase price but also closing costs, property taxes, insurance, potential vacancy periods, and ongoing maintenance expenses.