Canada builders shift from condos to rentals amid investor demand

Thu Feb 4, 2016 4:37pm EST
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By Andrea Hopkins

TORONTO Feb 4 (Reuters) - Amid fears of a bubble in condominium prices in Canada's largest cities, developers say they are shifting from building condos to high-rise rental apartments, as institutional investors look for assets with steady cash flow.

Canadian developers have largely focused on condos for more than a decade, but builders say demand from pension funds and real estate investment trusts (REITs) for rental income to diversify their portfolios has them shifting gears.

The result is, not only more rental units on offer in cities like Vancouver and Toronto, but a slowdown in the supply of new condos.

"It's easier to make money in rental than it used to be," said Christopher Wein, president of Great Gulf Residential, a developer with projects in Canada and the United States.

"The fact that pension funds and institutional investors are looking for more long-term income producing assets like purpose-build residential rental towers gives us more opportunity to sell the buildings once they are completed."

All of the 12 projects Wein has in the design stage were planned as condominiums, but he now intends to make four of them rental projects.

Developers point to solid rental demand. Recent data from Canada's national housing agency showed the vacancy rates in Toronto and Vancouver were 1.5 percent and 0.8 percent respectively, well below the national average of 3.3 percent.

"There is an absolute rise in rental interest," said Jonathan Wener, chief executive of developer Canderel. "There are a lot of institutional investors who prefer the recurrent revenue stream from apartments."   Continued...