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David George-Cosh

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Canadian real estate investment trusts (REITs) broadly traded higher Tuesday as investors appear to largely shrug away concerns that the newly elected Liberal minority government will soon pass policies aimed at cooling off rising rent prices. 

The Liberals made several pledges targeting Canada's housing sector that focused on making homes more affordable for Canadians, including reining in some of the expensive rents charged by REITs as well as policies aimed at curbing what the party described as excessive profits made by the country's larger landlords. That move was made in response to some REITs that were increasingly trying to snap up large portfolios of Canadian rental housing that were seen to place upward pressure on rents.

However, with an election result largely resembling the status quo and a lack of specific details provided by the Liberals, some analysts aren't fretting much about any drastic change in policy on the real estate front. 

"Rent controls as you know are provincial jurisdiction, so there is little the [federal] government can do on this front, even though they did have a platform promise to tax excessive rent increases as a result of renovations of apartment properties," said Matt Kornack, real estate equity research analyst at National Bank Financial, in an interview. "What constitutes excessive and how this would be implemented is key to understanding this policy."

Kornack added that that could see some impact in markets like Ontario where there are vacancy decontrol regulations in place, although he noted that landlords typically improve rental units once they are turned over to charge better higher rates. 

With that in mind, Kornack thinks the newly-elected government will conclude that REITs and other major Canadian landlords benefit Canada's rental market participants. 

"They invest in their properties to keep them in good shape and they follow the rules when it comes to rent controls," he said. "So long as a property is owned by the private markets, it is a financial asset, and having toured a number of properties previously owned by smaller investors that were then acquired by Canada’s public REITs, the quality of living was significantly improved."

Concerns about high rental rates from homes controlled by REITs may also be misplaced. Scotiabank Analyst Mario Saric said in a report published last week that rental rates charged by REITs are generally within 10 per cent of the industry average calculated by Canada Mortgage and Housing Corporation. Saric noted that Canadian REITs also often own rental properties located in more sought-after areas, which may explain why rents are slightly higher than the industry average. 

While Saric advises REIT investors to keep a close watch on housing policies, he expects rent charged by Canadian REITs to continue to exceed the market average, "due to significant capex spend over time plus provision of professional management supporting higher rent and quality accommodations."