New data shows rents beginning to fall, challenging landlords and investors who continue to face increasing compliance and maintenance costs.
Canada Mortgage and Housing Corp (CMHC) says rents for a two-bedroom apartment are down in four of seven markets it analysed due to falling immigration intakes and an increase in the supply of rental properties.
The biggest fall hit Vancouver, which has seen a 4.9% drop in average rents in the first half of the year. Halifax (-4.2%), Toronto (-3.7%) and Calgary (-3.5%) also suffered drops in average rental income.
Edmonton (+3.9%) Ottawa (+2.1%) and Montreal (+2%) remain in positive territory for investors.
The declining immigration intake and an increase in the supply of rental properties will continue to put pressure on rents for at least six months.
CMHC suggested the impact could last up to two years.
It highlighted in its report how purpose-built rental units in Toronto, Vancouver and Calgary were proving difficult to fill when competing for renters against older condominium units and single-family homes.
In its six-monthly report, CMHC said: “Purpose-built rental operators are responding to market conditions by offering incentives to new tenants, such as one month of free rent, moving allowances and signing bonuses.”
The decline in rental income is mild compared with the incredible rent rises that tenants have had to face over the last five years. Investors enjoyed unprecedented rental growth in the aftermath of Covid.
CMHC data has been supported by a survey from Rentals.ca and Urbanation, which said rental prices were down 2.7% year-over-year in June – the ninth consecutive month of annual rent decreases. An average rent was now $2,125, which is 11.9% above levels from three years ago.
Here are seven strategies for investors to adapt to the latest market conditions:
Market reassessment – Don’t cling to old rental expectations. Objectively assess the current market. Talk to your property manager or local real estate agency. We’re happy to assist you.
Price competitively – If demand is low, overpricing will lead to extended vacancies, which is far more costly than a slight reduction in rent.
Prioritise retention – Good tenants are gold. It’s often cheaper to retain a good tenant than to find a new one, especially when demand is low. Consider offering incentives for lease renewals, such as upgrades to the kitchen and bathroom, or installing new air-conditioning.
Teamwork – Lean on your property manager. They can provide real-time market data, advise on competitive pricing and implement effective marketing and tenant retention strategies.
Be responsive – Maintain a positive relationship with your tenants. Address their concerns promptly and professionally to increase the likelihood of a lease renewal.
Maintenance pledge: A well-maintained property not only attracts tenants but also encourages them to stay longer, reducing turnover costs.
Enhance appeal – If you need to find new tenants, invest in upgrades that increase appeal, such as fresh paint, modern light fixtures, new blinds and updated tapware.