Analysts have been posting pessimistic forecasts for REITs, citing headwinds such as a higher interest-rate outlook, challenges in taxation, and possible fallout from the struggling retail space. But a possible increase in rent prices could give the sector a much-needed boost.
Martin Roberge, portfolio strategist at Canaccord Genuity, cited statistics suggesting that current home-price increases are unsustainable, according to the Financial Post. Referring to figures from property registration system provider Teranet, the analyst noted a 13.4% year-on-year increase in housing prices – approaching the 2006 peak of 14.1% during the previous cycle.
“It is just a question of time before housing-price inflation spills over into rental inflation,” Roberge wrote in a recent market analysis.
While rental inflation is currently at just 0.5% year-over-year, the analyst believes that it’s due to accelerate. Unaffordable housing prices and tightened mortgage lending standards, he believes, will push more households toward the rental market.
“We have often referenced 2006 as a possible roadmap for financial markets in 2017,” he said. “Well, if 2006 is any guide, the upcoming upturn in Canada rent-price inflation bodes well for Canadian REITs.”
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