REITS SHOULD GET LIFT FROM RENT PRICE INFLATION

Some investors may have fallen out of love with Canadian REITs, but rent price inflation could provide a leg up for the sector.

The latest round of data on home prices in the Greater Toronto Area marked a 33- per- cent year- over- year increase for February.

That is not sustainable, according to Martin Roberge at Canaccord Genuity.

He pointed to Teranet figures that show Canadian housing price inflation is up 13.4 per cent on an annual basis, approaching the previous cycle’s peak of 14.1 per cent in 2006.

“It is just a question of time before housing price inflation spills over into rental inflation,” Roberge said in a research note.

Rental inflation is just 0.5 per cent year- over- year, but the strategist believes that likely represents a trough. That’s because increasingly unaffordable housing, coupled with tighter mortgage standards, push households to the rental market.

“We have often referenced 2006 as a possible roadmap f or financial markets in 2017,” Roberge said. “Well, if 2006 is any guide, the upcoming upturn in Canada rent- price inflation bodes well for Canadian REITs.”

Canadian REITs posted a 29- per- cent return in 2006, compared to 17 per cent for the S&P/TSX composite.