Canada’s housing market could be on the brink of implosion. Nobody knows when the significant correction will be, but many pundits have been warning investors of Canada’s frothy real estate market and easy mortgage lenders that could crumble like a paper bag, as credit continues tightening like a vice, it’s only prudent to ensure your portfolio isn’t exposed to such risks.
Kevin O’Leary once referred to the Canadian REITs as “poo-poo,” and given the circus that’s been going on over the past few years, I certainly wouldn’t disagree when it comes to select Canadian REITs that are overexposed to some of Canada’s frothiest markets.
Of course, all REITs trading on the TSX Index shouldn’t be put under the category of a “poo-poo investment,” as there are ones that are not only safe from a potential housing market crash but could stand to continue growing as the lights go out on Canadian real estate.
Consider the following two high-yield REITs if you’re looking to invest in the asset class without risking your shirt on an event that could cause substantial capital losses.
Killam Apartment REIT
When it comes to the bubbliest of bubbles in Canada’s housing market, the Greater Vancouver Area and the Greater Toronto Area markets top the list. So, if you’re looking to navigate the potential pitfall, I’d invest in a name that’s not concentrated in such markets.
Killam Apartment REIT (TSX: KMP.UN) is a growth REIT that owns and operates manufactured home community (MHC) properties primarily on the Atlantic Coast, the ailing province of Alberta, and Ontario.
When speculators are looking to pile into real estate, I’d imagine the last place they’d look to invest are MHCs, which are known to be more affordable. Moreover, the Atlantic coast is relatively immune from a potential shockwave across the Canadian housing market, if ever the bubble bursts violently, as some have predicted.
Given Alberta has already been in a rut for many years, I also see a minimal downside for Killam’s Albertan properties in the event of a complete housing meltdown.
Killam sports a 3.5% distribution yield and is currently down over 11% from its October high. I’d back the truck up on the cheap REIT at this juncture if you’re looking for a growing source of passive income that’s not heavily exposed to the outcome of a black swan event.
Inovalis REIT
Up next, we have a European-focused REIT in Inovalis REIT (TSX: INO.UN), which owns and operates office properties in some of the hottest urban locations in the French and German markets. With a massive 7.8% yield that usually surpasses the 8% mark due to short-term fluctuations in the share price, Inovalis is one of the best ways for cautious Canadians to give themselves a raise without risking the farm.
As a Euro-focused REIT, Inovalis won’t face much of the shockwaves if Canada’s housing market were to implode. The small-cap ($305 million market cap) REIT is growing remarkably fast, and with a new source of funding to bolster its small, but top-tier property portfolio, I see Inovalis as a passive-income staple that can not only give your passive-income stream a boost but also grant you exposure to the lowly correlated French and German office real estate markets.
Shares are just off 5% from their November all-time highs. I’d treat the dip as a buying opportunity and collect your big distributions with little to no worries about the state of the domestic housing market.
