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Ottawa must stop stimulating real estate prices: Montreal Economic Institute – The Suburban Newspaper

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The Montreal Economic Institute think tank is calling on the federal government to stop measures that spark increases in real estate prices.

The MEI statement says rapidly rising prices for residential real estate in Montreal, as well as Toronto, or Vancouver, “has very tangible consequences for the middle class.

“Potential buyers in Montreal are faced with an overheated sector characterized by bidding wars. What explains this?”

Miguel Ouellette, Director of Operations and Economist at the MEI, said the supply of new properties “is not rising as quickly as the demand.

“The situation has worsened over the past year as Canadians’ savings grew significantly,” he added. “One solution would be to build more housing, which means more flexible zoning rules and an end to regulations aiming to impose the construction of social housing in residential towers. Indeed, these measures just drive up the prices of the other units, making them less affordable for the middle class.”

Olivier Rancourt, economist at the MEI, stated that the federal government “also put measures in place in 2019 to make access to housing easier for first-time buyers.

“Even though the intention was good, this just pushes prices higher and makes buying more and more difficult,” he added. “Extremely low interest rates also mean that people are ready to buy more expensive houses than before. We need to remember that interest rates have been at historic lows for more than 10 years now. In short, with municipal governments slowing the construction of new housing and a federal government stimulating prices, there’s nothing surprising about the current situation. But it could well prove untenable, or at least very difficult for the middle class.”

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Experts sees optimistic real estate market in Canada for rest of 2021 – The Suburban Newspaper

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There’s a very optimistic outlook regarding the Canadian real estate market for the rest of 2021, experts told a CBRE webinar Thursday afternoon.

CBRE is a commercial real estate services and investment firm. The webinar Canadian Real Estate Update 2021 was hosted by organization president and CEO Werner Dietl, and featured CBRE Ltd. vice-chairman Paul Morassutti and Benjamin Tal, Deputy Chief Economist of CIBC World Markets Inc.

An introduction to the webinar points out that “inflation could be a key factor for investors, businesses and individuals for the first time in decades. Hard assets continue to act as a hedge against financial market fluctuations while businesses building out and renting space face rising costs.”

Regarding the real estate market for the rest of the year, “in virtually every sector that we see, the mood is just undeniably optimistic, that’s right across the board,” said Morassutti. “If you use REIT (real estate investment trusts) as a proxy, the TSX REIT index was down, I believe, 13 percent in 2020 and this year it’s up 25 percent. The Dow Jones REIT index is up 25 percent this year, so net asset values have not moved at that pace, they’ve only moved moderately, but the momentum is absolutely going in the right direction. If you look at the property level, fundamentals in virtually every sector in Canada are improving, everyone is looking forward to the second half of the year.

“On the capital market side, for investment activity, we had one of the strongest first [half of the year] we’ve had in the last five years, and it looks at this point that we are tracking towards a year that might be one of the best that we’ve had. That’s pretty remarkable. When you look at the totality of the market, notwithstanding the fact there are still some issues out there, in general, the mood is just incredibly strong. The entire market believes the third and fourth quarters of 2021 will be even better.”

Tal says he also envisions good news.

“The second half of the year is going to be on fire,” he added. “We know that because there is so much pent up demand and we are opening up. We are sitting on a mountain of cash…. We wake up and realize that Canadian households are sitting on no less than $100 billion of excess cash…. This will generate a significant acceleration of economic activity in Canada.”

Regarding inflation in the coming months, Tal said: “Inflation is there, but the Bank of Canada is telling us that whatever we see is short lived, but nobody knows.”

He added that on a monthly basis, prices are rising higher than expected.

“That could be short lived, but there is a risk it could be more than that, and that’s the key risk facing commercial real estate. You see, the issue is not inflation… The risk we are facing is that the Fed or the Bank of Canada will wait until the inflation goes down, and it doesn’t, and when it doesn’t, we will realize we’re behind the curve… and what do you do when you chase a lagging indicator? You raise interest rates very quickly to catch it. The history of real estate crashes is the history of central bankers overshooting. The earlier the Fed and the Bank of Canada move, the better.”

CBRE also provided The Suburban with a summary of Montreal industrial second quarter activity.

“Industrial continues to be the most coveted asset class,” the summary says. “The average net asking lease rates climbed to an average of $8.24 per square foot. Over three years, they have surged 44 percent. In addition, a record of 4.5 million square feet is now under construction in the metropolitan area, almost two-thirds of which is already leased.

As well, “availability rates have dropped to 1.4 percent in Q2 from 1.9 percent just three months earlier with industries such as e-commerce, food and beverage driving the highest demand.

“Midtown (the St. Laurent-Côte des Neiges-NDG Decarie Blvd. area) currently holds the highest availability rate of 2.5 percent, up from 2.1 percent in Q1, while the North Shore and Laval have fallen below one per cent (0.2 percent and 0.3 percent respectively, down from 1.6 percent and 1.3 percent in Q1).”

The summary concludes that “experts suggest that such low rates may soon push companies to consider building industrial facilities farther and farther from the city centre. CBRE forecasts that industrial will continue its strong performance and that off-island sub markets will continue to grow as availability rates shrink.”

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GCP Raises $2.3 Billion for Logistics Real Estate Investments – BNN

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(Bloomberg) — Real estate focused investment firm GCP said it closed a $2.3 billion fund that will be used to buy and operate warehouses tied to logistics and e-commerce.

The fund has already acquired about 25 million square feet of real estate and will will look to buy about 25 million more, GCP Chief Executive Officer Alan Yang said in an interview. Los Angeles-based GCP is aiming to own about 100 properties in the fund.

Yang said it’s GCP’s first discretionary fund and is unlike previous vehicles tied to specific investments.

GCP spun out of Singapore-based investment manager GLP in 2019 following Blackstone Group Inc.’s $18.7 billion acquisition of GLP’s U.S.-based assets. Yang, who was GLP’s chief investment officer, founded GCP after it took on $1.1 billion of GLP assets that weren’t part of the Blackstone deal.

GLP is a limited partner in GCP, alongside other investors including Goldman Sachs Group Inc. and several pension funds, according to people familiar with the matter who asked not to be identified because the information was private. Representatives for GLP and Goldman Sachs couldn’t be reached for comment.

Yang, who founded the firm with former colleagues from Blackstone where he worked earlier in his career, said he’s betting on e-commerce to keep driving the need for warehouses to help in the last-mile delivery of goods.

“Logistics 1.0 was about delivering wholesale goods,” Yang said. “Logistics 2.0 is now about retail and direct to consumer — getting goods to people’s doorsteps for the lowest price and least amount of time.”

Logistics Boom

The GCP fund will focus on real estate logistics, investing and acquiring warehouses and other facilities in key markets across the U.S., chiefly Seattle, Los Angeles, Miami, Portland and the northeast corridor via eastern Pennsylvania.

GCP also owns and operates Modlo, a logistics platform founded in 2019 that operates its properties and serves as its consumer-facing brand. Modlo’s clients include Amazon.com Inc., which leases a Seattle property that was custom-built for the e-commerce giant, Yang said. Other big clients include Keurig, Dr. Pepper, DHL and FedEx, he said.

Modlo’s staff — part of GCP’s total team of about 35 employees — also helps identify new assets for investment.

The logistics real-estate world already has some big players, including real estate investment trust Prologis Inc. and Blackstone, which created a company called Link to manage its U.S. logistics real estate.

One of GCP’s largest deals was a $308 million portfolio of properties in Pennsylvania and Central California that it bought from USAA. It has invested about 60% of the fund and will start raising its next one when 75% of it is deployed, Yang said.

GCP’s Design

“How we designed GCP and the fund is that it can go anywhere on the risk spectrum,” Yang said. “We’re agnostic to specific deal size or market.”

Yang said that the fund is targeting mid-teens returns for the fund.

©2021 Bloomberg L.P.

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In its latest crackdown, China intensifies focus on real estate – Aljazeera.com

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After a years-long campaign to tame property prices, China is upping the ante to break a stubborn cycle of gains that’s made homes increasingly unaffordable.

In recent days, China jacked up mortgage rates in a major city, vowed to accelerate the development of government subsidized rental housing, and moved to increase scrutiny on everything from financing of developers and newly-listed home prices to title transfers. Echoing Xi Jinping’s famous words that “housing is for living in and not for speculation,” Vice Premier Han Zheng added that the sector shouldn’t be used as a short-term tool to stimulate the economy.

The intensified focus on real estate — an industry that was already under the scanner — mirrors broader crackdowns on businesses such as education that are seen as widening social inequities. As China’s economy slows and President Xi tries to increase the nation’s birth rate, the policies underscore the Communist Party’s growing resolve to respond to mounting dissatisfaction with hoarded wealth and narrowing avenues for advancement.

“China’s property sector has been one of the biggest sources of discontent and the government is hell bent on controlling prices so it doesn’t lead to social unrest,” said Beijing-based Liao Ming, a founding partner of Prospect Avenue Capital. “The measures echo the policy curbs in education in that they are aimed at easing public angst against inequity.”

While China has spent years trying to cool property prices, analysts say this round of crackdowns will be different. One clear signal came in Vice Premier Han’s comments on steering away from using real estate to provide short-term boosts for the economy.

“In the past, Beijing has consistently used the property sector to stabilize overall growth,” Nomura analysts led by Lu Ting wrote in a research note, adding that they expect Beijing to change its playbook. Policy makers won’t lift property restrictions this time partly due to concerns about a systemic financial crisis, the analysts wrote.

Another signal came from the unusually large number of government entities that vowed recently to strengthen measures on everything from project development and home sales, to rental and property management services. Eight policy bodies said in a joint statement that they would step up penalties for misconduct. In the line of fire will be developers that default on debt repayments, delay deliveries on pre-sold homes or elicit negative news or market concerns.

Local bureaucrats’ careers are on the line. Officials in cities that lack sufficient regulations and experience rapid price spikes will be held accountable, Zhang Qiguang, an official for the Ministry of Housing and Urban-Rural Development said on July 22.

On Monday, commentary from state-media Xinhua urged governments across the nation to keep home prices at a reasonable level and make it an urgent task.

“New residents and young people can’t afford to buy or rent good homes,” the editorial said. “Those problems are especially acute in cities with population inflow and metropolises.”

Troubled Developers

Investors have responded by selling property stocks, with the recent stream of news piling pressure on developers that were already being pressed to deleverage and meet China’s “three red lines” on debt metrics.

China Evergrande Group shares were little changed as of 14:13 p.m., after plunging more than 40% in just under two weeks. A Bloomberg Intelligence index of 33 major Chinese developers mostly traded in Hong Kong dropped for a fourth consecutive day on Wednesday.

China Chengxin International Credit Rating revised its outlook for the country’s real estate sector to negative from stable on Monday, citing concerns about policy tightening and weakened investor confidence.

“Owning property is one of the key ways in which income inequality has worsened in China so the clamp down will come and will be severe,” said Alicia Garcia Herrero, the Hong Kong-based chief economist for Asia Pacific at Natixis. The cost of mortgages will increase, particularly for those with multiple homes, as will things like property taxes, she estimated.

The policies are here to stay, Ren Yi, the social media commentator and Harvard University-educated princeling otherwise known as Chairman Rabbit, wrote in commentary online.

“The nation’s leaders are looking at this issue from a bigger point of view, property isn’t just a economic tool, it sits at the root of all social economic and political issues, and must be dealt with,” Ren said.

Balancing Risks

The Chinese government needs to maintain a delicate balance. The real estate sector accounts for 13% of the economy from just 5% in 1995, according to Marc Rubinstein, a former hedge fund manager who now writes about finance.

Policy missteps could have unintended consequences for the banking system. Chinese banks had over 50 trillion yuan ($7.7 trillion) of outstanding loans to the real estate sector, more than any other industry and accounting for about 28% of the nation’s total lending.

Of those loans, about 35.7 trillion yuan were mortgage loans to households and 12.4 trillion yuan were for property development, according to official data.

But all signs point to the government’s determination to ensure social stability, even if it spells near-term turmoil for capital markets. Just in June, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, warned against betting that property prices will never fall.

“Property is the single most important source of financial risks and wealth inequality in China,” said Larry Hu, head of China economics at Macquarie Securities Ltd. It “is worth watching.”

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