Canadian respondents to the Emerging Trends in Real Estate 2010® survey exhibited little smugness despite a relative lack of distress in Canada’s real estate regions from US overleveraging. While Canada’s conservative approach to the markets may have helped the sector elude a direct impact from the US credit market collapse, the report’s interviewees suffered big losses from their south-of-the-border real estate investments. In fact, according to Emerging Trends, a joint undertaking by PricewaterhouseCoopers and the Urban Land Institute, 2010 will be the worst time for investors to sell properties in the report’s 30-year history.
However, Canadian respondents are taking comfort from their predictable local markets. In 2010, Canada will face a mild recovery with “flat to modestly improved” operating performance. Softened markets will avoid potential distress except for small pockets of undercapitalized condo developers.
Domestic and overseas real estate investors may see less opportunity in Canada next year
Canada’s relative market stability comes with a drawback for those looking to take advantage of a cyclical upswing that will hit just before 2011. Canadian investors who seek real estate’s old-fashioned returns will develop projects or head into foreign markets. Big Canadian institutions are also preparing to increase foreign allocations. During recovery, interviewees reported that they would likely find better returns elsewhere and cited Brazil and India as current favourites.
Emerging Trends respondents are worried that disappointed foreign investors may shy away from Canada as well. According to interviewees, “They don’t see enough big gains,”— a five percent return with low risk isn’t compelling enough compared to what’s coming in the US and UK.
Canadian real estate leaders dread more economic shocks from the US
Canadians also fear the state of the US economy. Interviews revealed that it was too soon to venture back in the US. The country’s auto industry negatively impacts Ontario’s integral manufacturing sector and their lower energy product demand cuts at western Canada’s oil and gas energy hubs. In addition, potential for rising interest rates spurred by US fiscal problems could inhibit Canada’s recovery. “We can catch US pneumonia very easily,” said one interviewee.
Curbed construction activity in Canada thanks to cautious real estate lenders
Developers in major city centres faced less demand as banks hamper construction loans. Condo projects in Toronto and Vancouver are put on hold while concern increases about overbuilding office buildings and condos in Calgary’s downtown core. However, refinancing isn’t an issue for bigger real estate players that have established relationships with bankers.
Emerging Trends in Real Estate 2010 reflects the views of more than 900 influential real estate leaders who represent a wide range of industry professionals: investors, developers, property companies, lenders, brokers, and consultants. PricewaterhouseCoopers and ULI researchers personally interviewed over 275 individuals and survey responses were received from 710 individuals
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