From a small northwestern observatory…

Finance and economics generally focused on real estate

Posts Tagged ‘Canada

REITs vs Open Ended Funds

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There is a great article in the current edition of REIT Magazine, by Michele Chandler, celebrating the 25th anniversary of the creation of REITs in Canada.  Ms. Chandler does a great job explaining why Canada has a REIT system in the first place, and why Canada’s REITs came into being in 1993.

In short, Canada’s commercial real estate market collapsed in 1993, and open-ended funds were flooded with investors redeeming shares.  The funds quickly appealed to the government which allowed them to suspend redemption.  This, of course, led to liquidity problems for investors.  The solution was to turn those funds into close-end REITs which would then be listed on the Toronto Stock Exchange.  Investors could sell their shares on the exchange to gain liquidity.  Today, the exchange has 38 Canadian REITs with total capitalization of about C$57.7 Billion as of the end of 2017.

This article illustrates one of the subtle but important benefits of REITs as opposed to a private equity fund or an open-ended fund — liquidity without having to sell off the underlying assets in a down market.


Written by johnkilpatrick

August 29, 2018 at 10:23 am

Canada looking more like the US and UK?

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The books are still being written on the causes and effects of the recent recession, but one wide-spread agreement is that aggregate household debt, and particularly the ratio of debt to household income, has been a real problem for developed nations.  In the U.S., this ratio hit between 1.6 and 1.7 at the onset of the recession, and then fell to about 1.4 today.  In the U.K., the ratio topped out at just under 1.6 in late 2007, and is now down under 1.5.  Given the flat-lining of household incomes in the two countries, this constitutes a very significant pay-down in household debt.  Note that for most of the 1990’s, this ratio hovered between 1.0 and 1.1 in the U.S., and between 0.9 and 1.0 in the U.K.  It wasn’t until the easy money period of the late 1990’s that these ratios started soaring.  (In the U.S., this was a gradual rise, really starting about 1990.  In the U.K., the rise was more abrupt, beginning about 2001.)

Now we har that our neighbors to the north are trying to copy our bad behaviors.  In 1990, the typical Canadian household had a debt/income ratio of about 0.9.  This gradually rose to about 1.1 by the late 1990’s, then hovered there for a few years.  Over the past 10 years, the Canadian debt ratio has continuously grown, with no “peak” in the early days of the recession, and now sits at about 1.5.

courtesy RICS Global Real Estate Weekly

Canada, interestingly enough, did not have the great depth and breadth of recession that roiled the U.S. and Europe.  While they had a brief period of negative GDP growth in early to mid 2009 (remember — two consecutive quarters of negative GDP growth defines a recession), their recession was both brief and shallow, and was followed by very positive numbers — their 2010 GDP growth rate got as high as 3.6% on an annualized basis, and continues strong today.
That having been said, Canada hasn’t been a powerhouse of economic growth since the early 1960’s, and many pundits suggest that Canada’s relative health during the past few years is a direct result of the fiscal conservatism of both their institutions as well as their citizens.  However, there are some faint storm clouds on the northern horizon.  Vancouver, BC, housing prices have been booming and some analysts suggest they’re in for either a fall or at least a fizzle.  Watching the Canadian household debt ratio get up to levels that the U.S. and the U.K. have found to be unsustainable and unhealthy isn’t very comforting.

Written by johnkilpatrick

February 16, 2012 at 10:02 am

Posted in Economy, Finance, Real Estate

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