Recent gains in average property prices are attracting a growing number of investors to major markets across Canada, and one in six Canadians plans to buy an investment property in the next 12 to 24 months, according to a report released today by RE/MAX in Canada.
The report is based on online interviews conducted in December 2005 with 1,200 homeowners across Canada and highlights developing interest in residential real estate as an investment. Close to 30 percent of respondents already owned one or more investment properties and approximately 18 percent indicated that real estate represented more than 51 percent of their total investment portfolio.
Why are purchasers turning to real estate as an investment, considering that prices are rising fairly rapidly, vacancy rates are relatively high compared to past years and stock markets have bounced back?
“We believe purchasers view residential real estate as a simple, sound and safe investment — something that is very familiar to them,” said Michael Polzler, executive vice president, regional director, RE/MAX Ontario-Atlantic Canada. “The risk factor is greatly reduced compared to other financial vehicles.”
The RE/MAX report also found that investors were younger than anticipated. Forty-three percent of those who intended to invest in the next two years were under the age of 40. Once tagged “Generation X,” these individuals supposedly rejected more traditional values like owning a home.
“Certainly, the promise of continued upward trending in housing values is a major factor influencing these investors, particularly in British Columbia and Alberta,” said Elton Ash, regional vice president, RE/MAX of Western Canada. “Over the past five years, residential prices have appreciated close to 10 percent on average, nationally. That’s a fairly impressive return on investment.”
In recognition of residential real estate’s potential for long-term growth, 50 percent of investors indicated they plan to hold their properties for 10 or more years. However, if an investor were to realize a tidy profit in the interim, he or she may be inclined to move on to the next income property, Ash said.
The report also confirms that real estate investing is not just a male activity. Females represented 16 per cent of those who say they intend to purchase an investment property in the next two years. Singles are also playing a greater role in investment, with 10 percent planning to buy an income property in 2006 and 2007.
Polzler said, “According to reported household income levels, today’s investors are solidly within the middle class, with one in five earning $50,000 – $60,000 a year and one in three earning $75,000-$100,000.”
The report found spending intentions almost equally split between those planning to spend less than $200,000 and those considering properties in the $200,000 – $500,000 range, suggesting that investment interest is spread throughout the marketplace, with respect to property, category and geography. For example, 41 percent of investors say they intend to purchase a home, 35 percent a multiple-unit building, 24 percent a condominium, and 13 percent a townhome.
Additional highlights of the report:
- Corporate executives and entrepreneurs are expected to be the most active investors, representing 25 percent and 19 percent of respondents respectively.
- Investors were generally well-educated, with most possessing some post-secondary education. Fourteen percent had gone on to a master’s or professional degree.
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