Q: A few weeks ago you wrote: "REITs are quite difficult right now due to how weak the housing market has performed and recent news that the Government of Canada will slow immigration." I find this interesting as from CMHC "Canada needs about 3.5 million additional housing units by 2030 to restore affordability." Overall Canada only had 240,267 housing starts in 2023. So there is still a massive shortfall as the 3.5M works out to about 580,000 per year out to 2030. The numbers don't align with the lower prices seen in REITs. Thoughts? Thanks
5i Research Answer:
We think this can still align with the lower prices seen in REITs. It highlights the supply issues in real estate due to higher rates impacting development activity. One of the core ways that REITs increase their NAV and share price is by developing/acquiring new properties. Since development activity has been constrained over the last few years, Canada has not been hitting its supply goals. The immigration news is another headwind where developers may be less motivated as less immigration could translate to less housing/rental demand. Certainly more houses are needed. But sentiment towards the sector can be the main driving factor in direction, and currently it is negative.