Outlook Optimistic For Canadian Real Estate

Posted on May 9/2011 by

Optimism continues to define the Canadian sentiment- especially in terms of the property market, as supported by the recent findings from REALpac / FPL Canadian Real Estate Sentiment Survey, Second Quarter 2011. The quarterly survey measures executives’ current and future outlook on three topics: overall real estate conditions, access to capital markets, and real estate asset pricing.

Highlights from the survey, for which interviews were conducted with senior executives from Canadian property developers and owners, institutional investors, asset managers, and other organizations include “The Overall REALpac/FPL Sentiment Index was flat in the second quarter, reflecting continued positive trends; more respondents see the real estate market as “about the same,” but the majority are still seeing and expecting improvement; expectations for further price growth continue to moderate; respondents suggest that debt availability continues to improve and recent market bifurcation seems to be fading; equity capital availability remains strong and is still on a positive trajectory.”

The fact that the index was fairly flat for Q2, suggests that slow and steady is generally a well received concept- and that a flat line does more to instil confidence going forward than the roller coaster of the last few years. Respondents said things like: “I think the market’s very healthy.

The real estate investment market has been healthy for over a year—running ahead of fundamentals, though. Now, it seems like the fundamentals might actually be catching up.”

Similarly, respondents seemed to draw strength from the implicit differences between the Canadian and the U.S. property markets.

Although most feel that the real estate market is “about the same”- many are expressing hope, and say that expectations are high for continued improvement, and some are specific in their ideas. ““From this point forward, expect the composition of real estate total returns to be significantly weighted toward income. Income growth—and not capital growth—will be the primary driver of returns in the near term.”

There is expectation too, that prices will continue to climb as well: “Everyone keeps saying that pricing can’t possibly rise further, but then it does. There’s still lots of capital chasing a limited number of deals, so I’m not going to be the one to bet on pricing declines.”

Finally, many feel that debt and capital availability continue to improve- and will do so in the foreseeable future: ““Debt’s available, even plentiful. The underwriting criteria are still fairly stringent, and any property that is outside of the box is still tough to finance, but for most assets that we’re looking at, the debt is there.”

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