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Hear Hot Property with Ozzie Jurock every Saturday morning between 8:30-10 am on CKNW AM980
Tip of the Week:
10/20/07
REITS NOT SO SWEET
Standard and Poor says: REITS NOT SO SWEET (S&P analyst Ron Charbon).
The market for real estate investment trusts is slowing and changing rapidly, according to Standard & Poor’s.
"The Canadian REIT market reached the top of the real estate cycle in the summer of 2007 and is now in a cooling off period” the large debt-rating agency said in a report this week. "Property valuations have reached unsustainable levels and are now declining," the report states.
Meanwhile, new regulations, ownership preferences and market conditions mean the Canadian REIT market could be without any hotel or health-care REITS.
"The Canadian REIT sector will emerge from these changes as a smaller and less diverse market with a greater emphasis on smaller niche REITs,”
The big change was the federal government's announcement last October that it intended to tax income trusts in a manner similar to corporations.
The government identified REITs as an exception.
However, in order to qualify, 95% of the trust's revenues must come from "rent from real or immovable properties.”
The government said rent from nursing or medical care or payment for occupation of a room didn't qualify. "Effectively the lodging and health care REITS would no longer qualify" for tax exemption status.
As a result, many REITs have either been de-listed or acquired, the report said.
Major Point: Apartment property-based REITS, public storage REITS and most commercial real estate-related REITS should survive, but pick your REIT investments with an eye to a possible takeover as larger REITS look to grow by buying up existing portfolios.
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