Skip To Content

REITs Slide as Investors Look Towards Private Mortgage Investing Instead

16 August 2013

When it comes to investing in real estate, the savvy investor knows that there are many avenues you can take. You can go the sweat-it-out route of being a landlord and spending all your spare time making improvements to homes that you don’t live in; or you can choose to bundle your investment with those of other investors and invest in MICs. Of course, there’s been such a sudden emergence of so many MICs that it essentially splits up the dividends even more while shortening the supply, greatly lowering the attraction of these types of investments.

And then there are REITs – packages that are a lot like MICs but are traded on the stock market. Not only does the TSX alone greatly up the risk factor the investor is taking on, but they’re also becoming less and less popular with investors as time marches on.

REITs have taken a beating in the last year. Last year REITs accounted for 48.2 per cent of the $14.8 billion spent on commercial real estate, but they’ve taken a serious plunge within that time. This year they account for only 29.3 per cent of the $14.7 billion commercial investments being made.

The reason for the sudden, and significant, drop is due primarily to the fact that investors are becoming increasingly worried about rising interest rates. With yields on the 10-year government of Canada bonds rising from 1.75 per cent to above 2.5 per cent this past May, the concern is that this will have a huge impact on REIT mortgage costs in the future. Those increasing interest rates also means more competition for investors looking for the best yields.

Throughout the grimness there are of course some analysts that still see that opportunity knocking just a little farther down the road. However realists know that the hay-day of REITs is most likely over, and more are turning to investing in private mortgages to gain back those yields.

This is primarily because private mortgage investments have nothing to do with government of Canada bonds. Those bond rates can increase or decrease, and it has no effect on the mortgage investment. The only thing that will impact that investment is the credit-worthiness of the borrower; and that’s always backed up by collateral in the form of property.

This latest news isn’t necessarily bad for investors, but it does signal a shift that’s happening in the type of investments they seek. With MICs, you need to be worried about the popularity of them, and simply whether or not you’ll see the returns you’re looking for with so many other investors taking a piece of the pie. And with REITs you need to worry about rising rates that take even more of that yield out of your pocket. With private mortgage investments though, you simply need to make that investment and wait for your return. No matter what rates or doing, or how many other people are doing it.

Contact Us

Contact us for more information or to book an appointment with one of our Investment Professionals.

    Thanks for contacting us! We will get in touch with you shortly.