If buying a home seems impossible, REITs could be the next best thing

Canadians who are struggling to buy a home could find they get better bang for their buck by purchasing physical property through real estate investment trusts, some analysts say.

Canadians who are struggling to buy a home could find they get better bang for their buck by purchasing physical property through real estate investment trusts, some analysts say.

REITs have long been favoured by yield-hungry investors because they provide steady dividend income and tax benefits. Some experts are convinced now is an opportune time to invest in REITs amid rising inflation, record capital flowing into the property sector and tight real estate supply. Though like all investments, these investments do not come without risks.

“Historically, real estate stocks have performed well in inflationary times like the ones we’re in,” said Andrew Moffs, portfolio manager at Vision Capital Corp, in an interview.

Statistics Canada recently said the country’s inflation rate climbed 7.5 per cent in February from a year earlier, a 31-year-high, and a large reason why the Bank of Canada raised interest rates earlier this month. Meanwhile, home prices soared more than 20 per cent in February to a record $816,720, according to the Canadian Real Estate Association, leaving many Canadians priced out of the market.

“When interest rates rise because of inflation during an economic expansion, so does most rental income for REIT companies, which leads to the profits being redistributed to shareholders through dividends,” Moffs explained.

He also noted there is a record amount of private capital chasing real estate, making this space more attractive to potential investors. Roughly US$364 billion in private capital was raised to invest in global real estate in the past year, according to Preqin, an industry data tracker.