It is no secret that the prices of homes in a few Canadian cities are exorbitantly high. When the prices of properties go up to unsustainable highs, we can expect the property price bubble to create problems for the housing sector. Among the top 10 cities that are nearing the risk of creating a housing bubble, two Canadian cities are giving real estate investors plenty of reason to worry.
Toronto is second on the bubble risk rating, and Vancouver is on the ninth, according to UBS’s Global Real Estate Bubble Index in 2019. Both of the Canadian cities have made it to this list consecutively since the past three years. The introduction of foreign buyers’ taxes and tighter mortgage rules in recent times have also done little to change their ratings.
Vancouver is reportedly the most expensive city in Canada. The prices of houses in both Toronto and Vancouver have begun to decline, but even at lower prices, Vancouver ranks as one of the most expensive in the world.
The bubble will burst
Analysts have had the prediction for many years that the Canadian housing market bubble is going to burst. There is little to exhibit that it might be happening right now. A significant price correction might not take place in the short term, since the overall mortgage conditions are improving.
The risk, however, is not something I would say has been wholly mitigated with the regulations and foreign buyers’ taxes. The housing market still can see the bubble burst, and that can spell bad news for Canadian investors who have a keen interest in the real estate sector.
Keeping your interests safe
The biggest concern, if the real estate market sees significant price corrections, is the effect it can have on the stock market. If you want to bank on the Canadian real estate sector, it would be better to consider a safer option to add to your investment portfolio.
Instead of owning real estate itself, stocks like Choice Properties Real Estate Investment Trust might prove to be an excellent option to gain exposure to the real estate market without the risks. The company is an income-producing powerhouse that pays shareholders dividends at an impressive 5.45% yield.
Choice Properties has a stable tenant profile, which consists of clients like Extra Foods, Provigo, and Superstore. The companies perform exceptionally well and offer Choice Properties a safer environment in terms of performance. Reliable renters like the ones Choice Properties has are capable of performing well themselves, despite an underperforming housing market or even a full-blown recession.
Due to these factors, Choice Properties can be relied on to keep your investments reasonably safe in an economic downturn. The company’s approach to business keeps it safe from the pitfalls of the housing market bubble. Additionally, it offers investors the chance to earn a sizable income through dividends. At $13.57 per share, Choice Properties could be a REIT worth considering for your portfolio.
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Fool contributor Adam Othman has no position in any of the stocks mentioned.