REAL ESTATE - AN INTRODUCTION TO NORTH AMERICA’S ‘MULTIFAMILY’ REAL ESTATE MARKET

39.jpg

With local property prices reaching record highs at the end of 2016, this year may be a good time to set our sights further afield. Brett Cameron, CEO of SkyPoint Realty Partners Limited, explains why a new wave of Asian investors are entering the North American market for multifamily real estate

By Jennifer Khoo


Biz.hk: What exactly is multifamily real estate and what are the benefits to investors over ‘regular’ real estate? What role does SkyPoint play?

Cameron: Multifamily real estate, which is more common in North America than in Asia, means rental housing in apartment buildings.

Rental housing is a non-discretionary expense: people require a place to live in both good times and bad. Those who invest in multifamily real estate receive returns based on the percentage of a building that they own, not on individual apartments.

The benefits to investors in multifamily assets include superior risk-adjusted returns compared to the real estate market as a whole over the past 20 years; steady and superior appreciation over time compared to other real estate asset classes; and predictable and stable cash flows due to low vacancy rates.

SkyPoint prides itself on providing the Asian market with outstanding intelligence on the North American real estate market. Our research combines macroeconomic fundamentals with local market intelligence that gives a clear picture of the North American real estate landscape.

Biz.hk: Why the focus on North America?

Cameron: Multifamily real estate is more common in North American than in Asia, particularly in Canada. At SkyPoint we focus on Canada and its major cities, in particular, on Toronto, the country’s largest city.

Why Canada? It led all G7 countries in economic growth over the last decade, according to the World Bank, and its population is forecast to grow by 45% over the next 50 years (StatsCan).

The country’s population is the most educated among members of the OECD (Organization for Economic Cooperation and Development), with half of its working-age population having a tertiary-level education (OECD).

It has a democratic and transparent government, and is the most tax competitive country in the G7 (KPMG). Finally, it ranked number one for the soundest banking system in the world eight years in a row, according to the World Economic Forum.

Why Toronto? For a start, the city ranks number one in the world as the ‘most desirable’ by The Economist and has the highest forecast net inbound migration of any Canadian city, according to the Conference Board of Canada [see chart].

Toronto housing prices continue to rise, leading to historic low rental vacancy rates of 1.7% (CMHC). The Toronto region accounts for 19% of the nation’s GDP and ranks among the top 10 financial centres globally (City of Toronto).

Some 40% of Ontario’s jobs are located in Toronto (Invest Toronto) and in recent years, Toronto outperformed all major US cities including Los Angeles, New York, San Francisco and Chicago in employment growth and household formation (SkyPoint) [see chart]. For someone investing in residential property, these are critical factors to consider.

Biz.hk: What are the main differences between North America’s real estate market and Hong Kong’s? 

Cameron: In Hong Kong, demand for housing continually outstrips the stock of housing available. In North America, this may be the case in some cities, like Toronto, but certainly not in all cities. 

As we have mentioned, multifamily housing as an investable asset class is more common in North America than in Hong Kong. In fact, it is almost unheard of in Hong Kong. 

Hong Kong investors who buy into real estate like the idea of ownership - owning an apartment, or a building, or a free-standing house. The notion of property as a purely financial asset class is new to them.

Biz.hk: What are the most common mistakes that investors make when investing in real estate?

Cameron: They fail to take into account local market trends, such as demographics, immigration, job creation, diversity of local industry, and the key housing demand / supply ratios. 

Investors also make the mistake of comparing nominal returns without properly factoring in risk. Would you rather invest in an individual carpark space or in a rental building with stable cashflows and capital appreciation? 

Biz.hk: What are some up- and-coming real estate trends that investors can anticipate within the next few years?

Cameron: In Toronto, we foresee continued strong job growth, particularly in higher paying jobs, and strong immigration [see chart], which will continue to create demand for homes, especially well located, luxury apartment rentals. 

The demographics tell the story and the demand is not going away any time soon. The average rental listing in Toronto stays up 12 days only. It’s a landlord’s market.

According to recent reports, listings are down and competition to find a good home in a good location remains high [see charts]. 

Biz.hk: What factors have the biggest impact on SkyPoint’s business? How does it respond?

Cameron: With the current uncertainties in the Hong Kong property market, due to the added 15% tax and new stamp duties; a decline in demand from China; and volatile global markets, the sentiment is that buyers are looking to countries that are considered safe havens and Canada is one of those markets. 

This higher demand is of course good for our business. Our strategy provides a solid choice of diversification in good times and bad.

Biz.hk: What does the future hold in store for SkyPoint? Anything in the pipeline?

Cameron: As a partner of the developer, Storey Living Corp. (Toronto), SkyPoint is an access point to three key development projects in the GTA (Greater Toronto Area) starting with OpArt Lofts located in the affluent and highly sought after area of Oakville. 

OpArt is the first project available to Asian investors, with two more projects located in downtown Toronto coming online soon. This is an opportunity to co-own class A multifamily residential real estate.

Biz.hk: Any advice for first-time investors in multifamily real estate?

Cameron: Do your homework, talk to people on the ground, be mindful of the trends and forces underpinning the local market, and mindful of the risk-adjusted returns. 

Biz.hk: Could you share some of your background and what you do now as CEO of SkyPoint?

Cameron: I joined SkyPoint at the end of 2015, attracted by the investment proposition behind multifamily assets. Multifamily properties fit with my work over the past 13 years in creating solid co-ownership stakes for individual investors.

Previous companies I have worked for include the Walton Group and ReDev Properties. My responsibilities with SkyPoint include business development and educating the market about the benefits of investing in multifamily properties in North America.