Aug 27 Overheating worries at home are driving
Canada's homebuilders south of the border where they buy up
rural land, betting on a recovery in the U.S. suburban housing
market even as many local players remain on the sidelines.
Homebuilders such as Mattamy Homes and Brookfield
Residential Properties Inc are buying
undeveloped land in Florida, Texas and other states where prices
tumbled during the global financial crisis and remain well below
The companies said that by moving now they give themselves
enough time to prepare the land and build homes so they will be
ready for sale once the U.S. recovery gains momentum in a couple
"We are probably a good two years away before we are at a
normalized U.S. housing market and so it is actually a good time
to go and buy in the U.S.," Mattamy Homes Chief Operating
Officer Brian Johnston told Reuters.
He said the company was focusing on suburban areas, where
more and far cheaper land is available than in the cities,
allowing to build on a bigger scale.
Mattamy and its peers also expect to hit a sweet spot with
retirees and affluent second-home buyers who want amenities like
shopping, dining and entertainment, and "snowbirds" -- Canadians
who migrate to southern U.S. states for the winter.
Some analysts warn Canadian builders could end up waiting
much longer than they expect for returns from those investments
and many of their U.S. rivals appear not sold yet on the idea of
suburban market revival.
"There is little bit of a timing risk. You can go buy the
land now but it will be sometime before demand really bounces
back," said Ryan Severino, an economist at real estate research
TALE OF TWO MARKETS
The contrast between the Canadian's vigorous push into the
U.S. market and caution of their local rivals largely reflects
starkly different market conditions in which they operate.
Canadian house prices have doubled in the past 11 years and
household debt to GDP ratio is around the all-time high of 164,
fuelling concerns that the market might be overheating. In the
United States that ratio is closer to 80 percent according to
data published by the St. Louis Federal Reserve and the market
is still at early stages of a tentative recovery after buckling
in the second half of 2013.
New housing starts bounced in July and the National
Association of Home Builders expects a 26 percent rise next year
while the nation's realtors' association is forecasting new home
prices to rise 4 percent by mid-2015. But new home sales fell
for the second straight month in July and just like north of the
border there are concerns about affordability of housing in the
light of stagnating incomes.
U.S. builders are also working through a backlog of unsold
homes, which limits their ability to finance new projects.
Inventory of new houses reached an equivalent of 6 month's
sales in July, the highest level since October 2011, according
to the U.S. Commerce Department.
"Many of our smaller builders don't have the capital and the
banks are reluctant to lend to purchase land," said David Crowe,
chief economist at the Washington D.C.-based National
Association of Home Builders.
Unfettered by such restraints Canadian builders are pressing
ahead with projects in their southern rivals' backyard.
Privately held Mattamy, the largest Canadian homebuilder,
with annual revenue of over C$1 billion, made its biggest land
purchase ever with a 9,600-acre (38.9 square kilometre) buy in
Florida this year. It also operates in Minnesota, Arizona, North
Carolina and other parts of Florida.
Landmark Group, one of Alberta's largest homebuilders, has
bought land in Phoenix, Arizona, to build its first condominiums
in the United States. It plans to expand into Texas, California
Calgary, Alberta-based Brookfield Residential said it will
start developing several new projects this year, well ahead of
an initial 2016 schedule, thanks to the strength of the U.S.
The company expects its U.S. operations to contribute half
of its total revenue by the end of 2015, up from 43 percent at
the end of 2013, Chief Executive Alan Norris said.
Ironically, part of the U.S. market's appeal is abundance of
cheap land. Canada is the world's second biggest country, but
most of it is sparsely populated and building activity focuses
heavily on big cities such as Toronto and Vancouver.
According to Severino parcels of land in Florida were
available this year for as little as $3.50-4.50 per square foot
whereas land prices for condominiums in parts of Toronto would
fetch $55 per square foot.
"In the U.S., given the affordability and the fact that
prices in the suburbs went down more significantly than in the
cities you will see more and more options and opportunities
outside big cities," said CIBC analyst Benjamin Tal.
(Additional reporting by Sagarika Jaisinghani; Editing by
Sayantani Ghosh and Tomasz Janowski)