What the coronavirus means for Canadian real estate
The Canadian economy and real estate markets might not be able to escape the affects of the global coronavirus outbreak, but strong underlying fundamentals will return prosperity in the longer term.
This is among the findings of a new study from the Real Estate Investment Network (REIN), a Canadian real estate education and research firm whose members have transacted more than 39,300 properties worth more than $5.1 billion.
According to the REIN Special Report: The Coronavirus’ Impact on Canadian Real Estate, Canadian real estate will see an immediate cool-down, but a long-term lift, due to:
- Temporary, small decrease in GDP growth
- Increased immigration
- Increased foreign capital
- Increased demand
- Leading to increased property values
These factors represent a buying opportunity now, REIN says.
Following is an edited version of the report.
There is some good news
Looking at the numbers, the future may not look especially bright, but there are also signs of hope. Take, for instance, the fact that China recently closed its last temporary coronavirus hospital because there aren’t enough new cases to support its operations. Apple has reopened all of its 42 stores across China, and the number of new cases in South Korea is on a steady decline.
Recession may be unavoidable
Earlier economic forecasts originally saw the impact of coronavirus as “modest and temporary,” at worst. But as more stringent containment measures are placed and oil price shocks take hold, the impact may be greater and may last longer than initially anticipated. Stalled exports to affected countries are set to negatively affect the country’s quarterly growth.
According to experts, the oil price shock, coupled with supply disruptions, could tip the Canadian economy into recession this year.
Nevertheless, the same report suggests that the economy is bound for a sharp recovery once the virus is contained, stimulus kicks in and pent-up market demand boosts the economy upward once again.
In current conditions, the economic implications of COVID-19 will be driven by a decline in land and international travel, along with the unprecedented oil price shock and disruptions to industry supply chains. The implications of policies, changes and impacts are numerous.
Short-term impacts on real estate
This will depend on quickly changing information and resulting policies as they unfold.
Medium-term impacts on real estate
A decline in GDP growth may impair the rental and property markets in 18 to 24 months. However, this is a unique situation and the velocity of the changing situation and responses could compress outcomes and timeframes rapidly.
Longer-term impacts on real estate
Demand for Canadian real estate will likely have a positive lift resulting from increased demand, rental shortages, demographics, immigration policies, and Canada’s position as a relatively safer harbour for capital, including foreign investment.
While there are travel restrictions in place, existing immigration policies have not yet been altered. The Canadian Federal government supports a continued upsurge in immigrant populations in the next few years. Once the outbreak is contained and the dust settles, we can postulate an increase in demand for migration to Canada, particularly from China and other Asian countries. This could then increase demand for both rentals and ownership properties, providing a further lift to real estate markets.
Post-coronavirus Canada can also mean a haven for foreign capital. All things being equal, it’s possible that post-coronavirus foreign capital becomes increasingly directed to international property investments, further boosting rental and property markets in the process.
Historically speaking, real estate tends to be a very stable asset class, even in times of turbulence. While current market conditions may not be the most conducive for purchasing properties at the moment, it is best for real estate investors to use this time to position themselves in a place where they are best suited to weather rougher times ahead.
Canadian real estate investors and property owners can prepare by following trusted sources for updates on the confusing and rapidly evolving scenario, refinancing where possible and staying calm, well-informed and alert.
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