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A condo complex in downtown Calgary, Alta., Thursday, June 26, 2014.Jeff McIntosh/The Globe and Mail

The Globe's Real Estate Beat offers news and analysis on the Canadian housing market from real estate reporter Tara Perkins. Read more on The Globe's housing page and follow Tara on Twitter @TaraPerkins.

Investors would be better off putting their money into real estate investment trusts that specialize in apartments than they would buying a condo to rent out in either Toronto or Calgary, real estate analysts at Royal Bank of Canada suggest in a new research note.

"Although purchasing hard real estate assets usually has a positive emotional aspect to it, the fact is that REITs generally outperform condo investments in both Calgary and Toronto over most time horizons," write the analysts, Michael Smith and Neil Downey, who cover real estate investment trusts.

They crunched the numbers for seven different periods of time, comparing an investment in a Toronto condo to an investment in Canadian Apartment Properties Real Estate Investment Trust (CAPREIT), and an investment in a Calgary condo to an investment in Boardwalk Real Estate Investment Trust. Each of the REITs owns a significant number of apartments.

"Over one and two year holdings periods, condos outperformed REITs, providing total cumulative returns of 18 per cent and 27 per cent compared to REITs which generated 11 per cent and 12 per cent," the analysts found. "However, over holding periods of three to seven years, REITs provided a total return of 78 per cent on average, compared to condos at 41 per cent."

In Toronto, they found that the condo investment outperformed CAPREIT in three of the seven holding periods, while CAPREIT had superior total returns in the other four periods. "Despite CAPREIT's impressive results, investors can buy the REIT for 7 per cent less than the REIT's net asset value," they write. "Imagine buying a condo for 7 per cent less than it is worth. What's more, if condo prices stall or decline, we think there will be additional demand for rental apartments as purchasers delay buying a home. We think this makes CAPREIT a clear choice over buying a Toronto condo for investment."

As for Calgary, they note that condo prices are currently about 5 per cent lower than their peak in 2007. "We highlight that while both the stock and condo markets experienced sharp losses that began in mid-2007, the Calgary condo market demonstrates how investors can be susceptible to market volatility which can be compounded by a lack of liquidity when it's needed most," the analysts say.

"In our view, strong economic and population growth together with muted supply growth will push Calgary condo prices higher," they add. "While the condo/REIT choice is not as clear cut as is the case in Toronto, we still favour Boardwalk (Calgary condo proxy). Boardwalk trades at a 4 per cent discount to NAV and benefits from virtually all of the same demand drivers as a condo."

Their calculations are based on condo prices from Royal LePage research reports, and use a five-year interest only mortgage at fixed rates that are adjusted based on the prevailing market rates for the time horizon. Because REITs carry leverage of 40 to 55 per cent, the analysts worked in the assumption that the condos would be bought half in cash and half by way of a mortgage.