Canada’s real estate market is tanking. In July, the average price of a Canadian home hit $665,000 — down 20% from February.
In March, Canadian cities started recording month-by-month declines in prices. This summer, prices began to fall — not only compared to the month before but to the same period in 2021. That’s significant, because year-over-year declines suggest a true correction, not a statistical blip caused by seasonality (e.g., people avoiding major purchases after Christmas).
So, the market is unquestionably in a correction this year. The question is, is it a time to buy? Although list prices are down, interest rates are up — you may not actually pay a lower price for a house this year, factoring in borrowing costs.
Fortunately, single-family houses aren’t the only way to invest in real estate. You can also invest in REITs. REITs are pooled investment vehicles that invest in properties. You can think of them as “real estate stocks” that trade on the TSX for small sums of money (usually $5 to $50 per share). In this article, I will explore three Canadian real estate stocks/REITs I’d buy in August.
Brookfield Asset Management
Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) is a Canadian investment firm that operates a variety of arm’s length investment funds. It manages Brookfield REIT via Brookfield Property Partners. Brookfield REIT invests in private real estate and real estate debt.
So, Brookfield REIT is both a property REIT and a mortgage REIT simultaneously. This gives you exposure to two different segments of the property market: equity and debt.
Now, you could invest in Brookfield REIT directly, collect a 5.18% yield, and call it a day. However, there are reasons to consider investing in Brookfield Asset Management and getting indirect exposure that way.
First, BAM.A owns many other assets apart from real estate, so it’s more diversified than Brookfield REIT.
Second, BAM.A collects part of Brookfield REIT’s 1.25% management fee, so it gains some of the results with less risk than a direct holding.
Third, BAM.A owns 62% of Howard Marks’s Oaktree Capital. Oaktree is a legendary bond investment company; it has averaged a 19% annual return over many decades. BAM.A has direct access to Marks’s expertise, it’s not clear exactly how much influence he has over the REIT.
Northwest Healthcare
Northwest Healthcare Properties REIT (TSX:NWH.UN) is a Canadian healthcare REIT with a 6% yield. It leases out office space to healthcare administrative organizations and health clinics. It owns a diversified portfolio of properties across Canada and Europe. It’s also branching into the United States.
Healthcare in Canada and the E.U. is government funded, so NWH’s tenants have no problem paying their bills. In the U.S., NWH’s next market, healthcare is mostly paid for by insurance companies — not quite as good as government revenue but more reliable than residential tenants’ wages.
In its most recent quarter, NWH.UN grew its revenue by 10.8%, had a 14.6-year average lease term, and had a 97% occupancy rate. Those are all good signs pointing to a healthy REIT.
Killam Properties REIT
Last but not least, we have Killam Apartment Properties REIT (TSX:KMP.UN). This is a residential REIT that rents out housing (i.e., apartments) in buildings all across Canada. Many of its buildings are located on the East Coast, especially Newfoundland. Housing on the East Coast of Canada is declining much less rapidly than in Ontario and BC. So, it’s a real estate market worth looking at.
Also worth noting is KMP.UN’s high level of tenant satisfaction. 90% of its tenants report being happy with their apartments, and 88% would recommend Killam to a friend. This may be a positive sign for KMP’s ability to keep tenants long term.
