In August 2024, the falling interest rates in Canada present a compelling bullish case for real estate investments. With mortgage rates expected to decline, leveraged real estate deals may become more affordable. In a lower interest rate environment, Canadian real estate investment trusts (REITs) could perform well. Therefore, it is advisable to consider investing in high-quality TSX REITs.
Why invest in TSX real estate sector stocks in August? Significant rate cuts are anticipated, which could reignite investor interest in highly leveraged TSX real estate stocks as borrowing costs decrease. Major lenders in Canada are forecasting a substantial decline in interest rates between the third quarter of 2024 and the fourth quarter of 2025. According to a report by Colliers International Group in July, interest rates are expected to drop by as much as 200 basis points to a range of 3.5% to 2.75% by the fourth quarter of the following year. This decline in interest rates could lead to increased real estate market activity and a potential rebound in Canadian REITs.
The two best TSX real estate sector stocks to consider buying now are Minto Apartment Real Estate Investment Trust (TSX:MI.UN) and Choice Properties Real Estate Investment Trust (TSX:CHP.UN). Minto Apartment REIT recently reported strong financial and operating results for the second quarter. Falling interest rates could drive trust units towards its recent net asset value per unit of $22.27, representing a potential increase of almost 43% over time. The trust owns and operates a portfolio of 6,211 rental apartment suites in Canada and has shown growth in key financial metrics.
Choice Properties REIT is a diversified real estate trust with a large portfolio of income-producing properties. With a focus on retail properties, particularly with Loblaw as a major tenant, the trust is poised for growth as it transitions into industrial and mixed-use developments. The trust’s property development plan could benefit from cheaper funding in a lower interest rate environment. Additionally, Choice Properties REIT pays out a monthly distribution with a yield of 5.3% annually. As financing costs decline, the trust may have more flexibility to sustain distribution raises.
In conclusion, the current economic environment with falling interest rates presents an opportunity for real estate investments in Canada. By considering high-quality TSX REITs like Minto Apartment REIT and Choice Properties REIT, investors may benefit from potential growth and income opportunities in the real estate sector.
