DATE: 18 OCTOBER 2012
POSTED BY : BY RAMAKANTH
Real Estate, along with Gold and Oil, is said to be one of those commodities that has a never ending demand and limited supply. It seems that Real Estate business it has finally hit its glass ceiling as far as Canada is concerned. There has been a marked decrease in the demand for newer constructions in the past few months.
“We expect a gradual unwinding of the imbalance in both sales and prices over the next few years” says Francis Fong, who is an economist in Toronto-Dominion Bank. Fong states that low interest rates on land are the only reason for the existing demand of homes.
Canada, with its economy heavily linked with USA due to the North American Free Trade Agreement (NAFTA), has become more affected by the 2009 financial crisis.
Most worryingly, it is the markets of Toronto and Vancouver that are expected to be the worst hit ones. Over the past decade, Real Estate of these cities gave handsome returns to its investors. It seems that the “bubble” could soon begin to burst. The grave predictions of financial experts, who consistently maintained that both the markets are hugely overpriced, have come true.
Although the market showed slight signs of improvement in the first weeks of September, there aren’t any real takers in the market. On the flip side, most of the owners are listing their homes in order to make most of the present situation. “Get rid of it as soon as you can” seems to be the most common advice of the financial advisors.
At this late stage, it must be noted that most of the financial experts are preaching caution. While admitting that selling the land as soon as possible sounds as a most sensible course of action, the experts say that such actions might cause more harm to an already weakened market. An increase in the listed houses is likely to trigger a chain reaction, which will plunge the economy into deeper crisis.
Any worse situation will affect the other markets that might cause pitfalls for the economy. The tightening of mortgage rules has visibly dampened any potential investors, who were willing to take the odd risk.
However, the Canadian Real Estate Association (CREA) maintains that all is not doom and gloom in the market. “The correction will be minimal” says the chief economist of the organization, Gregory Klump. He says that prices will continue to “sit on the fence” between profits and losses, leading to a stalemate. In short, Klump says that the investors looking for quick disposal will not stand to gain when compared to the others, who hold onto their investments.
In short, the Real Estate market in Canada hangs on a precipice. Any sudden movements might upset the whole applecart, which can lead to only one end. The prudent solution in these times is to hold onto the assets in hand, and wait for the market to recover.