Are REITs a good investment in 2023 in Canada? (2024)

Are REITs a good investment in 2023 in Canada?

On the bright side, Canadian multifamily REITs have returned somewhere in the mid-20-per-cent range in 2023. This is no surprise, as rents have soared and there are chronic supply shortages in major cities. Most analysts seem to believe that the party for multifamily REITs will last forever, but I am less optimistic.

Which REIT is best to invest in Canada?

There's no question that some of the most popular REITs to buy are residential REITS. And while there are several high-quality residential REITs to consider in Canada, two of the best are Canadian Apartment Properties REIT (TSX:CAR. UN) and Morguargd North American Residential REIT (TSX:MRG. UN).

Is 2023 a good year for REITs?

The strong fourth quarter carried over to an 11.3% return for 2023 as a whole for the REIT-focused index, underperforming the S&P 500's 26.3% return for the year.

What is the projection for REIT in 2023?

REIT Market Outlook and Forecast

The REIT market is projected to see 2.6% year-over-year growth in 2023. The REIT market is forecast to grow at a CAGR of 2.8% from 2022 to 2027. The market size is estimated to increase by $333.01 billion from 2022 to 2027.

Are Canadian REITs safe?

Conclusion. Canadian REITs are a popular choice for income investors seeking reliable cash flow. With their high dividend yields, tax advantages, and diverse property portfolios, they can be a valuable addition to your investment strategy.

Which Canadian REITs pay the highest dividend?

What are the pros and cons of REITs Canada?

Real estate investment trusts reduce the barrier to entry for investors in the real estate market and provide liquidity, regular income and other perks. However, you'll be exposed to risks that aren't inherent in the stock market and dividends are subject to ordinary income tax.

Why not to invest in REITs?

Investing in REITs can be a passive, income-producing alternative to buying property directly. However, investors shouldn't be swayed by large dividend payments since REITs can underperform the market in a rising interest-rate environment.

Will REITs do well in 2024?

Equity Residential is a multifamily residential REIT that owns and operates a diversified portfolio of apartment properties. Brown says Equity's 2024 guidance suggests same-store revenue growth of between 2% and 3% in 2024, compared to previous Morningstar estimates of 5.4% growth.

Is it a good time to buy REITs?

With rate cuts on the horizon, many publicly traded REITs have rebounded, and the industry as a whole seems well-poised for a recovery in the coming year. Ultimately, the decision on whether or not to buy REITs will depend on the specific circ*mstances and risk tolerance of each investor.

Do REITs outperform the S&P 500?

Data dug up by our research team suggests that in the long run, when factoring in their dividend payments, REITs actually outperform the S&P 500 by an average of about one percentage point per year.

Will REIT bounce back?

In fact, REIT total returns bounced back with impressive performance in the last quarter of 2023. Based on historical experience, the convergence of the wide valuation gap between public and private real estate will likely ensure continued REIT outperformance into 2024.

Are REIT funds a good investment now?

In other words, looming rate cuts in 2024 might make it an excellent time to invest in REITs. Buying REIT exchange-traded funds, or ETFs, is a proven way to gain exposure to the potentially lucrative commercial real estate sector while benefiting from professional management and diversification.

Why are Canadian REITs falling?

Narratives around office vacancy rates and the persistence of remote & hybrid work dragged on office performance. At the same time, rising interest rates pushed investors away from income-paying real estate investments like REITs in pursuit of higher yields from GICs and fixed income.

Why are Canadian REITs down?

Adding to higher interest rates, slowing commercial activity forced many businesses to renew or reduce their office lease. Office REITs took a hit as fewer tenants renewed their leases, and some reduced their leased space.

Are REITs taxed in Canada?

In Canada, a REIT is not taxed on income and gains from its property rental business. Instead, shareholders are taxed on a REIT's property income when it is distributed, and some investors may be exempt from tax.

How to invest in a REIT in Canada?

Investing in REITs in Canada

The easiest way for investors to add REITs to their investment portfolio is to purchase a REIT ETF through their discount brokerage account. The top REIT ETFs in Canada are BMO's ZRE, Vanguard's VRE, and iShares' XRE.

Can I buy REITs in Canada?

The Canadian REIT market is small compared with its U.S. counterpart, but it still offers investment opportunities. REITs offer long-term-oriented individual investors an opportunity to enhance portfolio diversification while providing attractive yields.

What is the best Canadian stock to buy and hold?

What is bad income for REITs?

This is known as the geographic market test. Section 856 (d)(2) (C) excludes impermissible tenant service income (ITSI) from the definition of rent from real property, making it “bad income” for the 75% and 95% REIT gross income tests.

Can REITs lose money?

Any increase in the short-term interest rate eats into the profit—so if it doubled in our example above, there'd be no profit left. And if it goes up even higher, the REIT loses money. All of that makes mortgage REITs extremely volatile, and their dividends are also extremely unpredictable.

What is the downside of a REIT?

Risks of investing in REITs include higher dividend taxes, sensitivity to interest rates, and exposure to specific property trends.

What I wish I knew before investing in REITs?

A lot of REIT investors focus too way much on the dividend yield. They think that a high dividend yield implies that a REIT is cheap and a good investment opportunity. In reality, it is often the opposite, and the dividend does not say much, if anything, about the valuation of a REIT.

How many REITs should I own?

“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.

How do you get out of a REIT?

While a REIT is still open to public investors, investors may be able to sell their shares back to the REIT. However, this sale usually comes at a discount; leaving only about 70% to 95% of the original value. Once a REIT is closed to the public, REIT companies may not offer early redemptions.