O’Leary: Real estate makes for a poor asset given current market conditions

O’Leary: Real estate makes for a poor asset given current market conditions

O’Leary: Real estate makes for a poor asset given current market conditions Lyle Adriano

In an interview hosted by Business New Network, O’Leary Financial Group Chairman Kevin O’Leary shared his take on the current housing market; he revealed that he does not see the 30 to 50% correction that other industry experts are anticipating, but still considers real estate a very poor investment for this cycle.

"You'd be an idiot to buy a house," O’Leary said during the interview.

He reasoned that investing in real estate is a bad decision, stating that he does not think that homes would considerably appreciate in value within five years. He also noted that buyers still have to pay real estate taxes and transfer taxes on the land, as well as pay their brokers 3 to 5%. All these closing transaction costs make real estate one of the more expensive asset classes to trade.

O’Leary surmised that it would cost investors between 8 to 12% to trade real estate assets. He also added that given the way things are, the chance an investor would enjoy a 12% appreciation over five years on a property is next to zero.

For close to 18 years, Canada has experienced a housing bull market, with perpetually low rates encouraging both homebuyers and speculators to snap up properties with almost zero capital. O’Leary expects that at the very best conditions will plateau soon, slightly improving chances of material appreciation on houses.

He goes on to mention the potential housing bubbles other pundits have observed in areas such as Vancouver, Montreal, Ottawa, and Toronto, where “shoebox condos” have begun sprouting to accommodate the large number of immigrants and/or millennials looking to move into the cities. With too many buyers and speculators participating in these popular markets, only time will tell when the bubbles will eventually burst.

O’Leary suggested that investors look into short duration, investment-grade corporate debt, as he sees it as an even more attractive and safer option than real estate. He also suggested to prospective homebuyers to look into renting instead, so that they can invest their cash into other things.
 
20 Comments
  • David Larock 2015-12-04 9:37:49 AM
    Based on O'Leary's track record, everyone should run out right now and buy houses!

    This is the same guy who told everyone to lock in to a fixed-rate mortgage in 2012 when they were offered at 3.00%, predicting that anyone who didn't would get "slammed".

    The real mystery is why anyone still listens to this blowhard.
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  • rob 2015-12-04 10:04:17 AM
    for most of my clients, the cost of renting is usually equal to or slightly less than owning a home.
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  • David Dickson 2015-12-04 10:05:59 AM
    There's a major logical error in Kevin's argument. "The large number of immigrants and/or millennials looking to move into the cities" is natural demand, not speculation. To conclude that household formation outstripping the supplying of housing stock is a sign of speculation is just wrong. If Kevin thinks there's too much speculation, state the evidence. I don't think that evidence exists but if it does, let's put it on table and review it.

    He might be right or wrong in his thesis but he has not made any valid argument to support it.

    To conflate a shift out and up of the demand curve with a speculative bubble is a silly syllogism. A professional investor should know better.
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