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Canada’s CPP Investments bets on home rentals as mortgage rates climb, Real Estate News, ET RealEstate

Canada's CPP Investments bets on home rentals as mortgage rates climb, Real Estate News, ET RealEstate
TORONTO: CPP Investments plans to buy more rental homes amid expectations higher mortgage rates would make home ownership challenging and boost demand for rental properties, its global head of real estate told Reuters.

CPP Investments, which manages C$541.5 billion ($426.1 billion) in Canada’s national pension fund, on Wednesday announced its first investment in single family rental homes via a U.S. joint venture with Greystar Real Estate Partners for a combined $840 million.

“We actually have a lot of confidence that this will be a very attractive sector to invest in,” said Peter Ballon, global head of real estate at CPP, speaking of residential rentals.

The joint venture will acquire professionally managed rental communities with detached or semi-detached homes and townhouses with private backyards and garages.

Low interest rates, supply shortage and an expected pick-up in immigration have fueled a record rally in Canadian house prices, pushing many buyers out of the market. With the Bank of Canada poised to raise official interest rates as early as April next year, home loans are set to become more expensive.

“Rising mortgage rates would have an influence on the demand for home ownership and that would make it more expensive and make renting more attractive,” said Ballon.

CPP allocates 8.5% of its portfolio, or C$46.2 billion, to real estate, which took a performance hit of -4.5% for the year to end-March due to foreign exchange losses.

Ballon said the new investment was attractive because there are many benefits to rental, aside from simply being an alternative to home-ownership.

“Not everyone is in an apartment building because they can’t afford a home,” he said. “A lot of people choose to rent because it offers more flexibility and other options.”

Ballon said rental housing will help diversify CPP’s portfolio.

In addition to its new single family home rental investment, CPP announced ventures in apartment building rentals in target markets in the United States, Canada and Brazil earlier this year. It also has similar ongoing investments in the UK.

Ivanhoe Cambridge, the real estate arm of Caisse de depot et placement du Quebec, Canada’s second-largest pension manager, also announced it was targeting multi-family U.S. developments earlier this year.

The Public Sector Pension Investment Board and the Ontario Teachers’ Pension Plan in August announced a joint venture in the residential rental sector in the UK.


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