With the US Fed fund interest rate and Bank of Canada interest rate have been around zero and 25bp respectively in the last three months, there is an expectation that the central banks rates stay close to zero until 2022. This low rate environment discourages people from keeping their money in banks or buying other fixed incomes such as bonds. Therefore, two attractive options for the investors will be to invest in equities or real estate.
The stock market is notorious for its volatility. Also, after the surprising post-pandemic stock rally, many analysts think that the stock market could be overvalued, and this has resulted in a lot of people being cautious about it.
So, the question a lot of people are asking is: “Where can we safely invest money when the interest rates are too low?”
Investing in Real Estate in Canada: Where are the Safe Options?
The most viable option investors are left with, is real estate. Where are the safe options?
As the pandemic has necessitated physical/social distancing measures with several people working from home, some experts think the value of location for the residential properties has changed since the buyers’ have less interest in living in the crowded spaces.
For instance, locations that were close to work centers e.g. in Toronto or New York which used to attract a lot of potential buyers, is projected to have less value, as people no longer need to live near these work areas. With this change in orientation, some beautiful suburban areas are beginning to attract buyers. What should this mean for a real estate investor?
1. Re-orientation: Hot Markets are Changing
The COVID-19 pandemic has led to drastic changes in which markets are hot, and which aren’t anymore. This means you cannot ride on assumptions or data of 2019 when deciding to buy a house now. Downtown areas used to be very hot markets, but now the interest in them has decreased. When choosing to buy a property, this factor must be considered. Working with an experienced local real estate agent will help you significantly in making the right decision during this complex pandemic time.
2. Think Long-Term: The Effects of the Pandemic Will be Here for Years
At the start of this pandemic, a lot of people expected it to be over within a couple of months. Now, it is becoming obvious that COVID-19 will be here for a long time. If you will invest in real estate, you also must project the long-term consequences of your purchase and buy a home in an emerging market.
Ask questions such as “Which areas are likely to grow because of the change in the buyers behavior caused by the pandemic?”
Areas located within a 2-3-hour drive radius from big cities are expected to become hotter, since people want to live a bit farther from these busy centres as many work from home. Also, if they need to get to the workplace occasionally, they can be there in only 2-3 hours. That’s a win-win scenario for homeowners!
Still the prices of homes in these areas are more affordable than the city centers areas, so this is an investment opportunity that should be harnessed soon- before the prices climb up significantly.
3. Make Important Inquiries before Investing
Very few things are certain in a pandemic of these proportions. Although countries are beginning to open and regular activities are commencing, there are still no guarantees that there wouldn’t be a second or third wave, with attendant consequences.
As markets continue to evolve, it is your responsibility as an investor, to make as many inquiries as possible before buying a property. Do your homework, make negotiations before your purchase. You’d be smart to work with real estate agents who have very good negotiation skills so they could help you in the negotiation process of the home buying.
Investing during the pandemic time is a grey area for many people. Real estate investments have typically stood the test of time, over the years. To benefit maximally when using this investment vehicle, you must get re-oriented about the evolving market, use a long-term real estate investment strategy, and do your homework/ extensive research before buying a property.