Canadian Residential Investment – Land Transactions Prop Up the Canadian Economy
Canadian residential investment has been steadily increasing – even during a global pandemic.
Better Dwelling shared that the total value of residential investment reached $54.89 billion in 2020 Q3 which is about 39.34% higher than Q2 of the year.
This is the biggest number ever and represents a growth rate of 18.03% compared to the same quarter in 2019.
Additionally, according to insights from BMO’s Chief Economist, Canada’s residential real estate sector now accounts for about 9% of the country’s economic output.
It is also important to note that the residential investment recovered much faster than other segments impacted by the pandemic.
In December 2020, the Teranet National Bank National Composite House Price IndexTM was up by 0.6% from the previous month. This is the strongest gain for the month of December since 2009.
The rise was led by six markets including Victoria (1.3%), Halifax (1.2%), Ottawa-Gatineau (1.2%), Montreal (1.0%), Hamilton (0.8%) and Vancouver (0.7%). This strong rise in prices is consistent with the rise of home sales volume over the last several months as reported by the Canadian Real Estate Association.
… and this growth is likely to continue this year.
According to RBC’s economics division, home sales will hit a higher level this year due to factors such as low-interest rates, buyers seeking spacious properties, and high household savings.
While it is clear that residential investment will grow, how does it positively affect the wider economy?
One economic theory that explains this is the wealth effect. The wealth effect suggests that people spend more as the value of their assets rises. When individuals purchase property, they feel more financially secure and confident about their overall net-worth.
So, as Canadians collectively allocate more resources to housing – they’re creating demand for other related services and industries. This is one of the reasons why investment in real estate directly contributes to the GDP.
When individuals or investors buy a property, they are effectively paying ownership transfer fees, taxes, and other costs to the government.
Then if they decide to look into construction options or renovation, they are leveraging the services of other organizations and professionals in the economy as well as spending on materials.
Another sector that benefits from increased real estate activity is the financial sector. Many buyers take on mortgages as well as insurance plans when they’re investing in a property. This helps increase business for companies offering insurance and financial solutions.
At Teranet, we are committed to support the government and businesses keep up with this increased real estate market activity through the delivery of exceptional registry services, data insights, and ecosystem platform solutions.
Whether it is an individual property analysis or national market intelligence, Teranet has solutions you can rely on. To learn more about our solutions, visit https://www.teranet.ca.