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January 11, 2021 - Blog Article
Low Mortgage Rates Are Driving Real Estate Investment Strategies

Photo credit: Pixabay

 

Most can agree that no matter when COVID is over, the effects of it will be around for sometime, thus paying attention strategies that are working, and why, will be beneficial to commercial real estate investments.  

While commercial real estate owners are improving their assets, the housing market is experiencing the strongest sales in five years. Low borrowing rates are a major factor in real estate sales, and when leveraged, it can help with much needed renovations to quickly adapt to the market. Now is a great time to boldly implement your investment strategies.

 

How are low mortgage rates driving activity?

According to CREA, The Canadian Real Estate Association, the average sales price of Canadian homes shot up by 13.8 per cent over the past year. This is the second highest performance during the first 11 months in 2020, January to November, since 2016. There are several reasons why, including record-low borrowing rates. Those that are working from home want more space, so low mortgage rates are encouraging new home purchases. However at the same time there is demand to buy, there is not necessarily a demand to sell in every province. Ontario, for example, is experiencing record-low real estate listings just as demand is strong.

Other positive effects of low borrowing rates are the ability to refinance. Some choose to recapitalize their investment when they want to renovate or buyout a partner. Since the second-wave restrictions due to COVID began, it has caused many CRE owners to reconsider their space, size and layout to accommodate remote workers. There is a big need for high-quality co-working space and outdoor elements, like terraces, balconies, and even amenity spaces. These elements can be added to mixed-use properties, retail or office properties to make them more attractive. 

Additionally, many CRE investment groups, like First Gulf in Toronto, are moving away from traditional retail tenants and going after tech, education, wellness and medical tenants, as the relationship between landlords, retailers and shoppers have changed. 

 

How will an effective vaccine affect demand?

Canadians are already experiencing sharp sale increases in housing over the past year. This is happening amidst the COVID-19 restrictions. The restrictions seem to not be enough to cool down the hot Canadian housing market.  Many people are choosing to relocate away from urban centres to open locations that offer a different quality of life, while simultaneously first time buyers and the Millennials seek to purchase in the city.

As such, demand that was once fulfilled naturally by the economic activity of businesses, retail, tourism, and other economic activities is now being stimulated by low borrowing rates, but how about an effective vaccine? How will it affect demand? 

There are some owners sitting and waiting for the vaccine, as that is the light at the end of the tunnel, so to speak. An effective vaccine is expected to bring even more demand as the borders and businesses reopens, and a record number of new immigrants come to Canada. 

 

Summary

Low borrowing rates are driving investment activity in both commercial real estate investments and in housing. Currently the supply is lower than demand; thus suburban housing prices are expected to remain strong and CRE improvement projects will continue until vacancy declines. A successful vaccine will add more demand and strengthen the Canadian market. It is a great time to invest in Canada.