Canadian Real Estate Sector Thriving Despite Media Pessimism

July 04, 2014

The continuing problems within the Eurozone are not only hurting investors in Europe but those around the world who have their wealth and their future invested in the stock market.

With each piece of bad news coming from the financial sector in Europe, whether it’s the recent LIBOR scandal or the implementation of further austerity measures on contracting economies, confidence in the stock market recedes immeasurably. Investors are now on the lookout for a new secure market, and the Canadian real estate sector continues to be a model for success.

In spite of the doom and gloom in the media surrounding rumours of a potential housing crash, the cold hard numbers act as evidence of the strength in the country’s real estate market. CREA recently upgraded their forecasts for 2012, saying that their experts believe that 475,800 homes will be sold in 2012, which is up 3.8% from 2011. The average home price is forecast to rise 2.2% to $370,000, which differs considerably with an earlier forecast that home prices would actually fall by 1.1% this year. The resilience of the Canadian real estate market simply cannot be under-estimated.

The inherent strength of the Canadian real estate market is symptomatic of Canada’s evolving role as an investment stronghold within the larger global economy.

Foreign investment in Canadian securities hit a record high in May of this year, based on a high volume of government debt purchases. Non-residents purchased $26.11 billion in government stocks, bonds and money market paper in May, which was well above the previous one-month record of $22.88 billion.

In a government research paper written for the firm Nomura Global Economics, Charles St-Arnaud noted that:

The strong inflows into Canadian assets happened at the same time as euro zone tensions re-intensified. This strengthens the argument that Canada is gradually becoming a safe-haven.”

However, despite the country’s economic strength, Canada is not immune to the Eurozone problems. Recent stock market losses on the TSX indicate that the stock market is an area in which few people are generating returns and many are losing value within their portfolio.

One of the central issues at play within the Eurozone is that with so many countries’ economies linked, a problem in one area of the continent becomes a problem for the whole continent.  While loan deals have been reached between the European Central Bank (ECB) and indebted countries such as Greece and Spain, the money received only masks the intrinsic problems within a system in which the fate of the Eurozone depends upon solid performance from every member.

The key indicator of expected future economic performance is the ratings that credit agencies place upon countries after reviewing the numbers. Canada has recently received a glowing endorsement of its AAA rating from credit rating agency Moody’s whereas Eurozone countries such as SpainItaly and Portugal are struggling after seeing their credit ratings cut significantly.

While growth in stock market investments remains limited, Canada’s economy is still thriving where other countries are slipping.

Canada’s reputation as an investment haven is based on several factors.

Firstly, the country is seen as having a stable economy, which is largely the result of its size and exceptional amount of natural resources. These are two factors which are stable and unchanging. Emerging markets around the globe require natural resources and Canadian companies are in a strong position to support that growth. While prices in the commodities market have decreased this year based on the global economic turmoil in other developed countries, Canada’s resources remain a key element in the country’s future forward trajectory.

Another element in the country’s favour is that the government has been proactive in responding to economic indicators before they become unmanageable. An example of this in action recently can be found with the new mortgage rules, which experts believe were designed to ensure that the rising tide of consumer debt recedes slowly over time.

Canada, and in particular major cities such Toronto and Vancouver, is also home to many resource-rich foreign buyers. For example, with buying restrictions on multiple properties in China, many Chinese investors are setting up homes in Canada to ensure they are protected against government intervention in their home country.

Given these factors, it’s clear that the Canadian real estate market remains an attractive investment opportunity for proactive investors. And it isn’t just CREA providing the facts to back up this assertion. In a June report, Scotiabank analysts noted that Canada was one of the few developed countries to report improving real estate figures even with significant strength already in the market. It’s no wonder many investment experts are now recommending local Canadian real estate markets as the ideal way to ensure portfolio growth in the coming years. Behind the attention-grabbing headlines, the numbers speak for themselves.

Find out how to boost your annual returns with real estate investments by speaking with an investment specialist today.