Buying Investment Property In Canada

Foreign investors interested in buying investment property may find enough support in the economic fundamentals and market developments this year to justify their investment decision. The outlook for investment in real estate looks promising, especially for investors from abroad interested in buying investment property in Canada. This outlook, however, compares to a grim state of the global economy and the property markets around the world, which makes buying investment property in Canada more favorable than purchasing stocks and bonds or buying investment property abroad.

Indeed, this year has brought some relief to the stock market investors. Bonds and other types of fixed income securities have seen solid gains as well. However, a closer look at the global economic and financial conditions suggests that it seems more likely that the emerging consumer deflation and continued deterioration in credit markets throughout the world will prompt global investors to allocate their investments into conservative, liquid assets. Therefore, this may be the right time to invest in attractive real estate so as to take advantage of undervalued properties and historically low interest rates. Many property investment opportunities may exactly be located in Canada’s real estate market.

In most world economies, a rebound in the stock market and fixed income securities has come against an extended slump in both residential and commercial real estate markets. Some may assume that large corrections in stock prices over the past several years make equities a good buying opportunity now. This may be true of some equities, but, in general, the market conditions are not favoring equity investments. Given that modest deflation is the most likely outcome for the near future, it may be expected that stocks will perform poorly as deflation cuts into corporate bottom lines and slashes expectations of future growth in earnings. Moreover, deflation increases the cost of financing for businesses and governments, thereby increasing the risk of default on corporate or government bonds. Therefore, neither stocks nor bonds are likely to provide satisfactory returns over the medium term.

But, does the same apply to real estate investments? And, specifically, why are real property investments in Canada attractive now? Home prices in Canada have been declining at a modest pace this year. According to most estimates, prices of Canada’s residential properties will recover next year, growing at the annual rate of 1.7 per cent. This increase will take place amidst mild deflation in general consumer goods and services worldwide. Therefore, any increase in Canadian home prices in an environment in which prices of consumer goods and services are declining will magnify real returns on investment in residential properties. This should make buying investment property in Canada attractive, especially for buyers from overseas locations that have poor real estate investment prospects. Moreover, this is more so given that market conditions are not in favor of buying investment property abroad.

Opportunities also exist in certain types for investment in commercial real estate. Generally, investments in commercial real estate are currently more attractive than stocks, given that returns on commercial real estate are insulated from market volatility. The returns that investments in commercial real estate yield are based on fixed long-term leases that generate stable income flows. In Canada, vacancies on almost all classes of commercial real estate have been increasing at a slow pace, bucking the global trend of apartment, office, industrial, and retail vacancies that have jumped stridently to all time highs. Moreover, prices of commercial properties have fared quite well, especially when compared to commercial real estate abroad, such as the United States. Hence, Canadian commercial properties in the areas that have a perspective for long-term employment and income growth represent a good opportunity for buying investment property in Canada with strong earnings potential. Given the dire state of the g

lobal real estate markets, this may especially hold true for investors from abroad interested in buying investment property in Canada.

The current global investment conditions suggest that investors should steer away from equities and bonds. Instead, they should focus on opportunities that will protect their investments in a deflationary environment. Given that Canadian real property market promises positive returns in the coming year, investors from abroad should try to capitalize on quality real estate investments by buying investment property in Canada. Those with readily available finance and courage to invest in real estate the current environment have a potential to realize substantial returns over the medium- and long-term periods.

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