RioCan to spend less as property prices soar

By Shounak Dasgupta and Ankur Banerjee

(Reuters) - RioCan REIT (REI_u.TO: Quote) said a steep rise in Canadian property prices may discourage the company from using up the $600 million it earmarked for acquisitions this year.

The Toronto-based REIT, which focuses on malls and shopping centers, spent more than C$1 billion in acquiring properties in 2011.

"Bad news is the capitalization rates that properties are starting to trade at in Canada," Chief Executive Edward Sonshine said.

Canadian housing starts blew past forecasts in April to the highest level since 2007, led by a surge in condominium constructions that added to concern about a possible housing bubble.

Bank of Canada Governor Mark Carney has urged Canadians to heed the lessons of the U.S. housing crash, calling excessive household debt the single-biggest domestic risk to the Canadian economy as home-buyers borrow at extremely low rates.

Sonshine, a lawyer-turned developer who was appointed Queen's Counsel in 1983, said both domestic and off-shore investors look at buying residential condos as something that's affordable, can be rented out, and will carry with today's low interest rates.

"I also think that the market is cooling off, hopefully in a good way," said Sonshine, who has been RioCan's CEO since its inception in 1993.

REITs have existed in the U.S. since the 1960s and in Canada since the 1990s.