Real estate market shock may change the values of Canadian assets drastically

While Canada keeps showing a strong reliance on the real estate market as a driver of economic growth, Fidelity Investments Portfolio Manager David Wolf believes it’s better to search for value in other segments.

According to him, all potential shocks to Canada’s overheated housing market may affect the entire economy, reducing asset values. He’s shifting away from Canada in his portfolio, pointing to worries about residential investment becoming a too large part of the GDP.

“Real estate sector is becoming the main player in GDP, and it’s already dangerous,” – he noted. Wolf added that Spain, Ireland and Greece also depended heavily on housing right before the financial crisis.

“This has led to massive housing bubbles and, as a result, to recessions.”

Today, the residential housing accounts for almost 9% of Canadian economic output. It’s the largest number in about a century.

In Wolf’s opinion, it’s necessary to increase property taxes and target foreign homebuyers.

The government will be able to collect the revenue and provide a support to the national economy in a way raising interest rates will not.

“In case we try to cool the real estate market with the help of interest rates, we may affect many other sectors and damage the indebted economy.”