The Canadian Real Estate Bubble?

Reggie Middleton's picture

Below is an email that I recieved from a reader:

shadowleaf rlhopRIO Canada is one of the biggest reit's in Canada I know some of there management and from what I can see they are buying property's left right and center that are in bad locations and are doomed to negative cap rates and are destine to fail. I think they would be a great REIT company here in Canada to analyze as a short candidate. As you may know the residential and commercial property bubble here in Canada has hit levels never seen in America or any where else in the world. The potential for gain in shorting these company's with the most exposure to down turn risk would be greater then any where else as they are so over valued and carry a much greater risk then company's involved in the property market any where else in the world. It would be great if you and your wonderful analyst team could analyze these Canadian property company's. The down turn is already on the way in Canada with Vancouver correct already 17 % and Toronto having the most condos being built in the world right now. I literally see cranes ever where with 142 condos projected to come on to the already oversupplied market by 2014. I own business here and know the real economy has stagnated and declined plain and simple people are becoming "broke" or the harsh times are starting to hit them.Canada's economy can not support the property bubble her and the collapse will be mush greater then what will come or already has come in the United States. With my stores and there retail sales falling already by 50-60 percent year over year since 2008. I speak with many tenants who own business who are struggling to pay there rents and some have not made a profit in almost a year the "thresh hold" has be reached people are either going to walk away or renegotiate there leases heavily. Yet these REIT continue to buy property's hand over fist paying outrages price with negative cap rates and outstanding leverage. The biggest residential and commercial property bubble will fall here in Canada and I thought I should bring it to your attention Reggie if it wasn't already because you do a great job of simply but completely analyzing a company and debunking there fallacies. Thank you for your time.

We looked into Rio Canada for BoomBustBlog subscribers, and this is what we found. 

All paying subscribers:File Icon Rio Canada Analysis

Professional and institutional subscribers can download a deeper dive: File Icon Rio Canada Analysis Back-up data

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Herdee's picture

Every investor knows about the big bank bailouts in the States but do you know about the 75 billion dollar bank bailout in Canada?I get a kick out of politicians in Canada that spin the Canadian population that seems asleep to it.The Tories or Conservatives took 75 billion of bad real estate loans off of all the major Canadian banks and essentially dumped them on CMHC (Canada Mortgage and Housing Corporation).Even Finance Minister Flaherty says it's not a "bailout".What a joke,and Canada's overall debt is about 850 billion and the world thinks Canada is doing good with over a million unemployed people.I found the story on and how politicians in Ottawa are just as captured by the banks as the Yanks.Two peas in a pod.And don't forget one thing,GolmanSachs has their man running the Bank of Canada and in my opinion,he will soon be running the bank of England.Print,print and print,just like Japan.

Never One Roach's picture

Global correction. So much for "the immigrants" propping up Australian House Bubble:


Melbourne’s sluggish real estate market is beginning to bite. Figures released today showing the median price of a house in the city has fallen by 5.3 per cent to $535,000 in a year.

Henry Hub's picture

This may have been mentioned before, but there is no tax deduction for mortgage interest payments in Canada. And no one walks away from a mortgage. You don't pay your mortgage, the banks can and will go after everything, including the gold in your teeth!

SmittyinLA's picture

"And no one walks away from a mortgage. You don't pay your mortgage, the banks can and will go after everything, including the gold in your teeth!" 


That may be fine for collecting debt from Canadians, but Canada has a huge recent immigrant/refugee/alien population that could easily walk away from their Canadian debts-that aren't even in their "real" names anyway, on the flipside, shorting could be risky with a Socialist banker controlled government whom has wide powers to effect real estate prices.

In a nano second Canada could open its immigration doors even wider to the global community and investors while simultaneously preventing any new housing construction-like they did in CA from Ventura County North to Oregon and make housing and rents skyrocket (temporarily enough to annihilate the shorts).  


Betting against a "Comand Economy" is a risky prospect with Socialist governments. 

scrappy's picture

Now is the time to create new tools to work "with" nature to survive and then achieve prosperity again...


Beyond left and right

scrappy's picture

To deny the possibility of the so called "unvirtuous cycle" is to deny the "seasons" and the fact we only have so many tools to hold back nature.

Been there..."Being There" Peter Sellers

Love that pink panther character too.



The.Oracle's picture

Damn I could really use a look at that analysis, can someone who is a paid subscriber drop me the dox? Would be greatly appreciated

By the way, as someone who as looked at the data pretty extensively, I can say with 100% certainty that Canada is in a housing bubble, from coast to coast. Expect drops of 40% just to get started---there has been a 100% price increase since 2001--that is certainly not found in market fundamentals



Reggie Middleton's picture

Actually, my preference would be for you to subscribe yourself. It's not that expensive, and you can do if for one day if you wish.

I can't put this stuff together if no one pays for it.

The.Oracle's picture

Completely acknowledged, and I appreciate your work. However, I don't think I'm cut from the cloth most ZHs are (who I am assuming come from a finance background). I just turned 20 and with my financial situation (euphemism) I could never rationalize a $100 purchase for a day's worth of access to your data. I do however try my best to soak up as much information and data as I can surrounding the pretty obvious housing bubble in Canada, just so as to raise awareness amongst my friends and family. This is why I was looking to get the data by other means, hope you can understand and aren't offended. Regardless, to me there is no question mark needed after Canadian housing bubble--there is a wealth of data that makes it pretty clear (I wrote a paper on it in university as well, despite the assurances of my neoclassical professors that 'prices will only go up')

canadiandollar's picture

totally anecdotal but in my little hamlet of chatham kent in ontario, a friend of mine has a house that he had bought at least a decade ago. it was a fixer upper which he paid over $100,000 for (sorry, i dont have the exact figure but if i see a response from you i can try to get it).

over that timeframe he has done alot of work to fix it up. this year due to a divorce, he has to sell. the realtor figures he might only get $90, maybe $95,000 out of it. the only thing it needs is new shingles. hes put hardwood floors throughout the house, new kitchen, you name it and its been done. CK realtors have told me that the houses which are not moving are those priced $200+. anything less but particularly those in -$100 are seeing lots of interest.

just a perspective from a very small portion of the country. cheers

billsykes's picture

In Burma (a 3rd world country) the gov't outlawed micro condos deeming them inhumane.

But in Toronto, where they are building micro condos 270sq ft, no problem.

There is a huge bubble here in real estate, I am not sure about RIO but there are plenty of dogs with balance sheets much much less attractive than RIO.

Fact is, canada is unproductive and lazy because of the resources that are quickly being sold overseas. O&G, real estate, and to a lesser extent mining is all anyone is interested in here. Quite frankly there is not many other businesses here that haven't consolidated, onyx the largest PE firm here raised and buys mainly in the USA.  

Canada, much like the USA has a good marketing campaign going on, in Canada it is robust economy & banks, and america with  the american dream and freedom, both of which are overstated and really hyped.



SmittyinLA's picture

What they outlaw in Burma.....they promote in NY, LA, SF and on Yahoo 50 weeks a year.

walküre's picture

You forgot the EURO marketing gig.

Imagine you're a German who is told not to be German anymore but breathe, eat, drink, think, dream and shit like a European.

Because that is the pinacle of evolution.



ItsDanger's picture

sorry double post.

ItsDanger's picture

CMHC buys into MBS with the cash collected on insurance premiums.  Doubling down on risk?

I did work with Riocan yrs ago.  Not sure if its really the best short in this sector.  But too many outlet centres for my liking so maybe you're on target here.  Still, there are is lot of room for different American retailers to move in there.  Pension funds own most of the malls in Canada.

ParkAveFlasher's picture

"Watch the Property Brothers turn this $350,000 three-bedroom rathole into a $675,000 money pit with marble countertops!!!"

steve brassey's picture

proper punctuation and spelling might lend a little more credibility here


RingToneDeaf's picture

Steve Brassey,

What if the poster is native in another language?

Shoot the messenger, his clothes are not the current style. No matter the message.

Lipstick on a pig does not change the story.

Jack Sheet's picture

some of there management

buying property's

shorting these company's

analyze these Canadian property company's.

With my stores and there retail sales

struggling to pay there rents

Polish or Chinese I would guess - their you go

jimmyjames's picture

RE looks pretty lofty in the great white north-

Jerk McGurken's picture

I spent last week in downtown Toronto and the construction of new downtown condo towers in the face of impending reality is mind boggling. A contractor pal of mine informed me that at the same time, labor rates in the construction industry and the ability to bid competitively in the high-end reno field have plummetted with the influx of undocumented Euro tradesmen from certain PIIGS countries. The last time I saw that many active derricks on a skyline was in Dublin several years back and then...everything stopped cold in its tracks.

hedgehog9999's picture

Low labour rates for construction probably means more construction as well as lower prices due to the glut and the ability to sell and still make a profit......

The fact is houses over the long term are tied to incomes and incomes are not rising and keeping up with the house appreciation, add the demographic wave that's just starting now and you have the recipe for Canadian house prices going down 25 to 50% over the next 3 to 5 years.....

Watch out buyers!!!



bobbyvelvet's picture

If things start going downhill they can always open the immigration valve.  Canadians have always been friendly to immigrants with funds.  B.C. was influenced by the influx from Hong Kong in the mid 90's.  In a country of 34 million it wouldn't take many people to make a big impact.   I'd imagine that Canada's "over priced" cities might be attractive to some.  Regina not so much....

Confundido's picture

Further to my previous comment, I want to clarify this: I believe that at some point, there will be a liquidation. However, unlike the US, the risk will not be transferred from the private to public sector but the other way around: Unemployment hurting fiscal solvency, which in turn hurts the backstop on banks....

akak's picture

If Americans used their own flag as a symbol even a fifth as much as Canadians slap that damned red maple leaf on every damned thing in Canada, people the world over would accuse Americans of being grossly nationalistic and jingoistic.

Just sayin'.

fasTTcar's picture

They do it not to show that they are Canadian, just that they are not American when they travel.

Just sayin'.

akak's picture

Then Canadians put it on just about EVERYTHING within Canada as well, and on EVERY Canadian-made product, exactly why?

Blind and kneejerk nationalism is ugly wherever encountered, whether within hegemonic powers or merely from those within their orbit.

canadiandollar's picture

we have too many statist worshippers here. geez, and we thought americans were bad!!! LOL

trying to tell people in my community how better off you would be without govt interference has as much impact as making them relive a scary story round the campfire when they were 9. the looks and/or comments i get range from the oddly quizzical to the outright angry.

memyselfiu's picture

what the fuck are you talking about exactly? The only canadian maple leafs I see are when american corporations try to rebrand themselves canadian, which means about sweet fuck all to most of us up here.


BattlegroundEurope2011's picture

I have spoken with many Canadians and they get really pissed of if you mistaken them for Yanks.  As the other guy wrote.  They do it because they DO NOT WANT TO BE MISTAKEN AS "Americans".

Maybe you should pause and reflect a bit.


otto skorzeny's picture

Canucks skould be kissing Benny The Hebe's hairy shriveled beanbag that his printer  has kept commodities jacked up.


Follow the yellow brick road and keep your hand off Bennys gear shift.

Metalredneck's picture

Tell me that when you fill up your SUV here @ $1.29/litre.

Kranskee's picture

It's not quite true to say that all mortgages in Canada are guaranteed by the government.  First, not all mortgages are issued with mortgage insurance, i.e., credit insurance that protects the mortgagee against borrower default.  Second while most of the mortgage insurance is issued by Canada Mortgage and Housing Corporation, CMHC is a Crown corporation. According to its actuary, the company is well-provisioned against potential claims.  While it is owned by the federal government, it is a limited company and if it fails the government (in theory) has no obligation to bail it out.  Would it do so without bailing out the two private insurers that are active in the mortgage insurance market?  Not likely.

While CMHC insurance is available to investors in the residential real estate market, CMHC rules require a minimum down payment of 20 per cent on non-owner-occupied properties.  It may not seem like much when the market is hot.

canadiandollar's picture

in theory your right, however taxpayers already have exposure via the bailout.....i mean the backstop taxpayers put up in order to clean the balance sheets of the 6 major banks back in 2009. were exposed alright.

Solon the Destroyer's picture

While CMHC insurance is available to investors in the residential real estate market, CMHC rules require a minimum down payment of 20 per cent on non-owner-occupied properties.  It may not seem like much when the market is hot.

You don't think there has been any fraud with respect to "owner-occupied"?  C'mon.  There are definitely non-owner-occ properties out there that only had 5% down and will be under water faster than you can say "housing bubble" when the shitshow finally floods the market.

Oso's picture

Mortgage insurance is irrelevent if the insuree has misrepresented assets and income of the applicant.  Ask anyone in the industry, they will say "soft-fraud" is rampant.  The banks do NOT have the equity capital to absorb mortgages put-back to them.

sushi's picture


Essentially you are correct. All high ratio mtges are required to carry mtge insurance issued through Canada Mtge and Housing Corp (CMHC) a federal crown corp. During the 2008 crisis CMHC did a number of deals in which they purchased either mtges of MBS from Cdn chartered banks. If the mtge portfolio turns deliquent then the CDN taxpayer is on the hook.

Vancouver RE has been bouyed by significant foreign investment, largely from China. In some cases condos are bought and remain empty as "escape pads" should China sour. This source of buyers appears to have slowed consequent on the recent bad numbers out of China.

It is less clear what is funding the rest of the urban condo mkt. Since builders here need to get 80 % pre-sales before obtaining financing there has been an increase in speculative buying. You put down a $20m deposit on a $250m condo and 3 years later as the bldg nears completion you flip your option and double your money as you capture 3 yrs of appreciation.

It also appears to be the case that folks who bought 30 years ago and who are now sitting on well appreciated properties have been using Home lines of credit to purchase condos for investment rentals or retirement properties. This means there is a lot of leverage in the system that will magnify any down trend.

The US housing mkt was around 4x annual incomes when it broke. Urban mkts in Canada are up around 7x annual incomes cause this time its different!

mr1963's picture

Thanks, good recap. Visiting my father in law in Palm Desert, golfed a couple of Canadians who used appreciation(both currency and housing) in Canada to buy in Palm Desert a few years back...

walküre's picture


I don't know if you care to learn about Canada and understand their real estate a bit better.

Canada's real estate is not in a bubble as much as real estate in NY, Seattle or Dallas was/is not in a bubble.

Investors are buying property in Vancouver, Calgary and Toronto to park their cash. Just as they would buy in the aforementioned US cities.

The energy boom in Northern BC and Alberta is going to be a huge deal with massive royalties flowing into public finances in BC and Alberta but also into the Federal purse in Ottawa.

When you hear Canada, think Norway with a twist of NY.


CPL's picture

Complete drivel.

There is no "boom" when it requires 9 barrels of good low sulfur gas to produce 10 barrels of shit tier piss that west africa wouldn't buy from Canada to run a bonfire.  Trillion dollar investment to produce a 10% energy production.


Yeah thats a boom.  Would you care to invest into a promised 90% loss?  I think you would and do.



walküre's picture

Seems that the Chinese are very much interested in buying Canada's energy options. I'm not an expert in all matters oil & gas exploration. Don't proclaim to be one either.

But the $15 billion Nexen deal is a game changer. Even the US Senate thinks so. Also, the various pipelines they're building to get LNG from the interior to the coast.

They have cheap hydro energy and lots of capacity in that regard. You can't deny the fact that billions are being invested and those putting their time, money and effort into this are probably alot more diligent than you care to be.

BurningFuld's picture

They are spending 20 Billion on a LNG port near Prince Rupert BC.   $$$$$$$$$$$$$$$$$

SAT 800's picture

for walkure; maybe you'd like to understand the subject under discussion a little better. "Investors ----park cash---"; Of course they park cash; but they are not investors; the parking is what is known as speculation. When the unexpected happens, and there isn't any profit to be made, and losses loom on the horizon, they will "un-park" their cash. Such is the nature of a bubble. The first sign of educational success in understanding the modern world is this; There Are NO Investors.

walküre's picture

Of course there are investors. There are plenty billionaires who are not comfortable putting all their money into Facebook. Much of Vancouver and Toronto condo sales are driven by cash buyers from Mainland China.

100% cash sales. No mortgages.

Sure, they speculate. But with cash coming literally out of every orface, they have to do something with it.

1+ billion Chinese, 1+ billion Indos and 30+ million Canadians. Both Chinese and Indos just happen to expand like crazy into Canada.

The real question for the US is, can the US deal with 3x multiples in Canadians? All of a sudden that Northern neighbor is not so small and quaint anymore. US Senate is trying to block the China-Nexen deal. What do you think is going on up there? Canada has no defense and is being invaded as we speak.

Toxicosis's picture

You're smoking some good crack there W.  All these chinese comin over here buying homes with cash.  Right, sure they are.  Nope sorry, the vast majority are coming over with minimum down payments like the rest of us.  Please pay attention and do a little research first.  Here I'll help you with that.

BattlegroundEurope2011's picture

Shitting ur pants now ?  LOL

We in the west have got our governments to thank.

Keep blaming everyone and everything for our problems but not the root cause.  We in the west are now a bunch of lazy sheeple waiting for slaughter.