The institutional real estate market has reached an estimated $12.6 trillion and its target allocation within portfolios has continued to rise, from roughly eight per cent in 2013 to an expected 12 per cent in 2022, according to data from the Cornell University Baker Program in Real Estate. And Canadian pension funds represent the largest ownership segment of the country’s real estate market.
Real estate has numerous benefits to investors, said Shaw, including both lower risk and higher-yield profile than fixed income. Since 1993, fixed income yields — represented by Canadian, Eurozone and U.S. government bonds — have steadily diminished from highs of between five and nine per cent to one per cent or less.
Meanwhile, a comparison of real estate investment trust, equity and 10-year government bond yields in Canada, the U.S. and four other countries revealed REITs consistently outperform. In Canada, the average REIT yield was close to four per cent, while equities were three per cent and bonds less than three per cent. However, Shaw noted a comparison between REITs and government bonds isn’t quite an apples-to-apples comparison as the former comes with credit risk.
REITs work well as an investment vehicle for DC plans that have historically stuck to the public markets. These vehicles offer immediate liquidity, better transparency than private assets and tax efficiency, though Shaw cautioned they do come with equity market risk.
In the short-term, he said, REITs behave very similarly to public equities in terms of their volatility. But over the long-term, REITs behave much more like the underlying real estate asset class and outperform public equities. “So we have to find a way to absorb the volatility to achieve the return.”
He noted there’s very low correlation in the real estate asset class as countries experience different cycles and markets, which can create significant diversification benefits for pension plan sponsors. Other countries tend to have their own sector-specialized REITs, such as exposure to health care and data storage centres in the U.S.
Real estate has also historically performed very well in inflationary environments, said Shaw, referring to global research by the Bank of America, which found REITs have had annualized total returns of 13 per cent in inflationary times and real estate, specifically, had roughly eight per cent annualized total returns, far above cash, commodities, energy, equities and fixed income.
While real estate valuations should hypothetically be negatively impacted by interest rate increases driving future cash flows down, “that’s not the whole story,” he said.
“In an environment where labour costs, materials cost and land costs are going up — and frankly, in Canada, we are unfortunately, subject to some of the worst regulatory [development] time frames in the world — it takes longer and it’s harder to build here than anywhere else. In an inflationary environment, it’s harder to add new supply [and] we have increasing demand for a fixed supply so there’s more rooms for rents to increase.”
There’s a strong case for long-term investment in Canadian residential real estate, particularly in multi-family housing, said Shaw. The country has set immigration targets of 1.3 million new Canadians between now and 2024, with 60 per cent of those being economic immigrants who are expected to settle in urban centres. Canada is also the fourth leading destination worldwide for international students, who play a major role in rental demand — as of 2021 620,000 foreign students were enrolled in Canadian schools and contributed $22 billion to the domestic economy.
Canada is also facing demographic shifts, including people remaining single for longer and living longer, which necessitate more homes. Meanwhile, the cost of home ownership has skyrocketed, driven by a dearth of new supply, particularly in Toronto, and historically low interest rates. By 2030, the province of Ontario alone is expected to be short by two million homes, noted Shaw.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
