Boom in construction of apartments to keep rentals high in Canada

Canadian real estate has been doing well of late and sales figures have been increasing throughout the nation over the last 2-3 months. In recent times, the boom in construction of apartments has kept rentals at higher levels in the country. Investors and real estate developers have been striving to scale up rental supply for offsetting demand arising from strict regulations for mortgage qualification. Other factors here include with reducing mortgage credit and the increasing population of Canada over the last 2-3 years.

Approximately 72,000 units were being built in the rental category at the end of Q3 2019 as reported by the CMHC (Canada Mortgage and Housing Corporation) which indicates the highest construction rate in three decades. 21% was the annual growth rate in the third quarter of the year which is the highest threshold observed since the second quarter of 2016.

Rental construction and prices to remain strong in Canada

Industry experts have stated that rental construction will remain strong all throughout 2020 and 2021. The Greater Toronto Area (GTA), according to industry experts, will keep witnessing a condo boom and increasing new construction of rental apartments will keep rentals at higher levels. More developers will want to build rental units in order to spread out their risks with some of it being shared with wiling sources of equity capital investors. Many old owners of family apartments are also looking at densification of existing locations for financial viability. The loss of parking on the site will not be affecting current rental rates since millennials are anyway choosing ride-sharing and transit facilities over cars.

Several rental apartments are now being constructed by developers on land which is owned by them, making these ventures more financially viable, bypassing higher costs of land.

Rental predictions throughout Canada for 2020

The rental market has always been a major growth driver for real estate particularly in terms of construction and employment generation. Here are some of the key trends worth noting in this regard:

  • Rentals in Vancouver may go up by approximately 3% in 2020 after increasing by 6.5% in 2019 with average rentals touching $2,351. There will be many new apartment complexes and rental inflation will be in check throughout 2020. Several renters will be buying their first homes in Vancouver as well this year with no increases expected in rates of interest and overall market improvements. This will ease out the pressure on the rental market.
  • Calgary is expected to witness rental de-growth of 1% this year after rentals came down by 5.2% in 2019, touching $1,381 on an average. There will be more first-time buyers buying homes here like 2019 and this will keep pricing pressure in check.
  • Edmonton had rentals coming down by 3.9% last year with average rentals touching $1,257. The average rentals may decline by 1% in 2020 and market dynamics may be quite similar to Calgary in this regard.
  • Toronto had rentals going up by 8.6% last year and condominium rents went up by approximately 4%. Many boomers and empty-nesters are now trading downwards for choosing rental accommodation which is smaller. Average rentals for 2020 may go up by approximately 7% (year over year). More condo complexes will be finished in 2020 and new supply will ease up rental price pressures.
  • Mississauga will witness approximately 8% growth in rental values in 200 with more renovations of apartment units by landlords, thereby spurring growth in unit values.
  • Ottawa is expected to witness rental growth of around 4% in 2020 while last year, rentals grew by around 0.5%. The market for housing remains strong here and this will keep rental growth on the lower side.
  • Montreal is expected to witness 5% growth in rentals for 2020 after rental values went up by a whopping 24.4% last year. Montreal is steadily drawing attention from investment trusts and institutional players due to its comparative lack of rental regulations and restrictions.
  • Rental growth was in the double digits last year on an annual basis for several cities in Ontario including Burlington, London, Kanata, Kitchener and Hamilton among others.
  • Increasing home sales were a factor behind the decrease in average rental rates throughout the nation for the second consecutive month, i.e. November, 2019.