Canadian real estate professionals are increasingly anxious about the sector's prospects over the next year, as a sector that has led the country's economic recovery shows signs of slowing along with the broader world economy.
Canadian respondents to an annual PricewaterhouseCooper survey worried the job market would slow, leading to weakening confidence in the country's housing sector. Meanwhile, commercial deal flow could be constrained as buyers find the market stalled by lack of willing sellers.
"Canadian consumers who have been on a spending and home-buying spree, encouraged by low interest rates, could see their self-assurance ebb and job growth has decelerated in response to all the noise about European and U.S. debt woes," said Lori-Ann Beausoleil, the consulting firm's Canadian real estate leader. "Sensing a general slowdown, respondents to our survey are taking a 'better-to-be-cautious' investment approach for 2012."
An annual report to be released Tuesday by PricewaterhouseCoopers asked 950 industry representatives in Canada, the United States and Latin America what they expected to happen in the 2012. It was the 33rd year for the Emerging Trends in Real Estate 2012.
The report quotes several industry players, but it doesn't name names. The Canadian respondents said "a big problem for the banks and large public pension funds is where to invest capital in the face of limited domestic opportunities."
That would drive foreign investors to look to more distressed markets for deals, the report suggested, such as the United States.
While the report doesn't strictly look at residential housing, it does strike a slightly alarmed tone about the country's condominium market. Respondents felt that the sector was dominated by foreign investors, an anecdotal claim which has never been proven empirically.
"Buyers in Vancouver and Toronto skew toward Asian investors and speculators, who rent most of the units," the report states, followed by an anonymous quote about how this may not be sustainable.
The report goes on to say that the condo market is unlikely to actually crash, thanks to an influx of immigrants to major centres and a lack of new rental stock from coast-to-coast.
The survey concludes with investment tips for anyone looking to get into the Canadian market:
Hold those Trophies: Husband cash flows, astutely manage properties to control costs and retain tenants and consider retrofitting with energy-saving technologies to ensure future competitiveness.
Buy or Hold Infill Land: Intensification policies will continue to propel land values in the gateway cities: available sites look like gold. Prices that may appear "crazy" today could seem like bargains tomorrow. Move-back-in-trends work against outer suburbs and disconnected suburban areas.
Don't Take Chances: There is limited opportunity to score big investment gains and the economy enters a slower growth mode. To be more opportunistic, investors could partner with hands-on operators to take under-used class B-/C apartment buildings and improve NOIs.
Development Turn More Wary: The big-city condo surge looks unstoppable but maybe it's time to turn a bit more cautious. The investor wave could give out, and pricing may need to take a breather.
Be Selective: Outside of condos, other sectors offer few opportunities beyond a choice office building in larger cities like Vancouver and Montreal. Mixed-use buildings get a boost across all major markets as retail developers work on infill projects in tandem with condo construction. New apartments make sense in markets where condo construction is muted. Hotels go nowhere.
Property Sectors Buy or Hold
Apartments Continuing immigration will fire steady demand.
Class A Offices. These are irreplaceable assets in the downtown cores.
Fortress Malls and Grocery Anchored Retail. In prime suburban districts with barriers to entry, these properties will continue to excel.
Industrial Properties in Toronto. Development opportunities exist for converting well-located low-ceiling warehouses into big-box formats.
Hotels. It's no time to sell.