Investment in rental apartment properties doubles year over year

Saturday, December 7, 2019   /   by Sergey Korostensky

Investment in rental apartment properties doubles year over year

A mixed bag of real estate news today.

A sector of Calgary’s homes market that gets overlooked is market-driven rental apartments, which is making some ripples in the investment community.
“While investment activity as a whole was down in the first half of 2019, demand for rental apartment assets has been very strong, with investment dollar volumes more than doubling compared to the same period in 2018,” says Matthew Boukall, vice-president, product management, data solutions at Altus Group. “The strength in apartment investment activity is not unique to Calgary. This asset class is in high demand across the country. The growth in rental apartment investment activity has been supported, in part, due to new construction activity over the past five years, which has created more investment opportunities, such as Minto REIT’s recent acquisition of the newly completed The Quarters building in Quarry Park.”
The investment activity data is included in Altus Group’s Calgary Flash Report 2019, which covers investments in all property uses in the city (residential, industrial and office), plus takes a look at the performance of the new multi-family homes sector in the first half of 2019.
Overall, says Altus Group, new multi-family sales moderated in the first half of the year, compared to 2018.

“While new townhouse sales continue to be brisk, new condominium apartment sales volumes have dropped, largely as a result of very slow sales activity in the inner-city market. The good news, however, is that Q2 sales did much better than Q1, ending the declining trend over the previous four quarters.”
New condominium apartment inventory remains a concern, says Altus Group.
“The excess inventory situation deteriorated further over the past year. At the end of Q2 2019, the approximately 2,700 unsold units in active new condominium apartment projects represented about two years of supply, based on the monthly pace of sales over the past year. The increase in available supply is the result of a larger number of active projects in the suburban market, with many new low- and mid-rise projects launching the past 12 months.

“A total of 37 condominium apartment projects were launched in 2018, for a total of just over 2,900 units (five of these projects were subsequently cancelled). Another 15 projects launched in the first half of 2019 (with two since cancelled).”
More on Altus Group’s report next week.

Now, a look at sales on the MLS System in Calgary in November.
Sales were down from November 2018, but enough to maintain a year-over-year increase in sales year-to-date, according to the monthly report from the Calgary Real Estate Board (CREB).
November’s sales were 1,160 homes, compared to 1,172 last November.
Only the attached-homes sector recorded a year-over-year increase (262 sales last month, up from 253 last year). Single-family home sales were 710, down from 680 last year, with the apartment sector recording a year-over-year decrease to 188 sales, down from 239 in November 2018.
Year to date, sales in 2019 are 15,519, up slightly from 15,348 sales to the end of November 2018.
By category, 2019 year-to-date sales (2018 in brackets) are 9,414 single-family (9,448), 2,539 apartments (2,556) and 3,566 attached homes (3,344)
New listings declined marginally, enough to just slightly reduce oversupply, in a market struggling to achieve balance, says Ann-Marie Lurie, CREB’s chief economist.
“Achieving more stable conditions will take time. Sales activity has been settling in at lower levels and is likely being influenced by the economic conditions and uncertainty weighing on our market,” says Lurie. “While the amount of supply in the market continues to ease, the persistent oversupply continues to weigh on prices.”
To the end of November, the citywide unadjusted benchmark price was $419,100, slightly below October’s price and two percent lower than November 2018.
“Market conditions continue to vary depending on price, location and product type,” says Lurie. “For example, prices have ranged from a year-to-date decline of nearly eight percent for row product in the east district to a two percent increase for semi-detached product in the north district.
“Larger price declines are often caused by high supply in the new home and resale markets relative to demand.”
The apartment sector is still a drag on the market, says Corinne Lyall, broker and owner, Royal LePage Benchmark
“Although we’ve seen some uptake in sales in both the detached and attached markets, the apartment condominium sector negatively affected the overall market with increased inventory and fewer sales than last year,” says Lyall. “We believe this is due to new product coming into the market.”
The Calgary MLS market is ending 2019 on neither a whimper nor a bang, says Lyall.
“The market is ending fairly average, with buyers taking advantage of lower price ranges and others waiting for prices to come down in the higher price points,” she says, adding she expects more of the same in the early months of 2020. “Economists are predicting improved gross domestic product and the positive impact of recent increased net migration in 2020, however we may not see that right away. The first quarter will more than likely reflect the last quarter of 2019 but then improve with spring market conditions.”
And further down the 2020 road?
“With positive news coming from the Trans Mountain pipeline construction, along with low interest rates, increased net migration and jobs, Calgary’s real estate market will ultimately see some buoyancy,” says Lyall.