Posted by: Daryl & Wendy Ashby | December 21, 2010

Rental Investments Look Good for 2011

For rental investors, 2011 does look promising. Metro Vancouver and Greater Victoria have among the lowest vacancies rate and the highest rental rates in the country.

Those buying new condos for a rental play need deep pockets, however, because it now requires a 45 per cent down payment to generate positive cash flow. CMHC states the rental apartment vacancy rate will stay near 2 per cent next year and rental rates – which average $1,150 per month for a two-bedroom apartment and about $1,400 for condo rentals – will continue to increase. Investors now own 28 per cent of Metro condos, down from 40 per cent during the boom, CMHC estimates.

The real rental investment action will be seen next year in the apartment building market, which is now attracting real estate investment trusts, pension funds and other syndicates. In the first 10 months of this year, despite onerous new mortgage restrictions and taxes and extremely low capitalization rates, sales of apartment buildings increased 14 per cent from 2009 with most of the action in pricey Vancouver, where sales soared 28 per cent.

In the West End, which led sales this year, the average apartment building sold for $234,900, up 24 per cent from a year earlier.

Canadian Apartment Properties REIT (CAP REIT) moved into the province in a big way this year. CAP REIT spent $37.5 million to acquire 1450 West Georgia Street in Vancouver this past spring, and in July the REIT bought eight buildings in Victoria for a total of $46.7 million. In addition, it opened a management office in Vancouver to oversee its B.C. operations.

“We like those markets, we think there’s good upside potential,” said Thomas Schwartz, president and CEO of Toronto-based CAP REIT, citing the stability of the region’s real estate, constraints on new development and a growing population as factors in its optimism.

“There’s no new supply. So you have growing demand in a market with finite supply,” he said.

Bill Chidley, senior vice-president, corporate development, with Boardwalk REIT, a Calgary-based investor, said his company’s tight focus on Metro Vancouver and Victoria is matched by the tenaciousness of owners who aren’t willing to let properties go.

The company has a total of 954 units, with 257 in Victoria and 657 in the Lower Mainland. “We really don’t look anywhere else,” Chidley said, adding that while Boardwalk wants to expand in B.C., its encounters don’t pencil out.

“We’d like to increase our position [in 2011]. What we’re finding, though, is a very, very competitive market to acquire apartments. They sell at quite low cap rates, so it’s challenging,” Chidley said.


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