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


TORONTO: CPP Investments plans to buy more rental homes as higher mortgage rates make home ownership difficult and boost demand for rental homes, its global real estate manager 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 through a U.S. joint venture with Greystar Real Estate Partners for a combined amount of $ 840 million.

“In fact, we’re confident it’s going to be a very attractive industry to invest in,” said Peter Ballon, Global Head of Real Estate at CPP, of residential leasing.

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

Low interest rates, a shortage of supply and an expected upturn in immigration fueled a record rally in house prices in Canada, pushing many buyers out of the market. With the Bank of Canada getting ready to raise official interest rates as early as April next year, mortgage loans are expected to become more expensive.

Rising mortgage rates would influence the demand for homeownership and make it more expensive and make renting more attractive,” said Ballon.

The CPP allocates 8.5% of its portfolio, or C $ 46.2 billion, to real estate, whose return was hit by -4.5% for the year ended at the end of March due to losses exchange rate.

Ballon said the new investment was attractive because renting has many advantages besides being simply an alternative to home ownership.

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

Ballon said the rental housing will help diversify the CPP portfolio.

In addition to its new investment in single-family home rentals, RPC earlier this year announced plans to rent apartment buildings in target markets in the United States, Canada and Brazil. It also has similar ongoing investments in the UK.

Ivanhoé Cambridge, the real estate arm of Caisse de dépôt et placement du Québec, Canada’s second-largest pension plan manager, also announced its intention to target multi-family developments in the United States earlier this year.

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