There is No Bubble—At Least Not Yet—in Montreal’s Hot Housing Market!

Montreal’s housing market has accelerated in the last five years, riding growth in the tech sector, a surge of millennial buying power, and prime economic conditions in the northeastern province of Quebec.

Median prices in the city center rose to C$532,026 (US$406,946) in the fall of 2019, about C$35,000 higher than they were the year before, according to a Royal LePage House Price Survey in October. And 2019 ended on a rousing note, with prices in all segments of the market up 26% in December compared to the same month in 2018, according to the Quebec Professional Association of Real Estate Brokers.

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Montreal’s high-end housing sector isn’t really comparable to major cities like New York and Los Angeles, but there is a definite, and growing, appetite for luxury in the French-speaking city. Luxury homes sales in the Montreal metro area have consumed a bigger share of the market in the last five years, driving home prices throughout Quebec.

Compared to total sales, the proportion of single-family homes that sold for more than $1 million increased 65% between 2014 and 2019, while sales of condos priced at $500,000 or more soared 96% during the same period, according to a September 2019 report by the association.

There are plenty of future opportunities that are under construction for luxury home shoppers, but current inventory is down and demand is steady, which keeps the pressure on prices turned up.

As Montreal’s momentum continues into 2020, it’s reasonable to worry: Is the city on track for a bubble-and-burst scenario?

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No, at least not yet, it seems.

“I don’t think there is a bubble. I think Montreal is one of those cities that has always been undervalued,” considering the quality of life it offers, said Randy Naami, a broker at Sotheby’s International Realty Canada.

While prices for the most expensive properties are growing steadily—many in the stately suburban neighborhoods of Westmount and Outremont or in the bustling Gold Square Mile district near downtown—they’re still relatively cheap compared to other major international cities, like New York and London, Mr. Naami said.

The city's unique geography—an island with a mountain in the middle of it—means homebuyers are spoiled for choice when it comes to lifestyle, he said.

Areas on the mountain offer aristocratic homes with an “L.A. feeling” and panoramic views of glittering city lights, Mr. Naami said. Or, “you can have a gorgeous waterfront condo facing the marina where you can park your boat."

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Montreal also benefits from a stable economy, low unemployment, and a consistent influx of internationals who come to study, teach and conduct business.

A Strong Economy

In the last decade, Montreal emerged from a period of political instability that started in the 1980s and has experienced a renaissance. Startups and mega companies alike have made the city home, creating jobs in the tech, artificial intelligence and video gaming industries. Google opened its first gaming design studio there in the fall of 2019, and Facebook, which has had a presence in the city for about seven years, opened a new artificial intelligence lab in 2017.

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It’s also an academic hub that draws tens of thousands of international students to McGill University, Concordia, Université de Montréal and other schools. The availability of good jobs combined with an advantageous currency exchange rate—one Canadian dollar is worth about US76 cents—is a big incentive for newcomers, including American professors and software developers, who often rent first and then buy, said Louise Rémillard, CEO and founder of Profusion Realty Inc. in Montreal. (They also can take advantage of low mortgage rates, around 3.2% for a three-year fixed-rate loan, according to the latest data from Bank of Montreal.)

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The median price for detached and or semi-detached homes in the desirable Westmount neighborhood is around C$1.7 million, Ms. Rémillard said.

“For our market, it’s considered luxury,” she explained. “We’re not in New York here.”

At the very high end of the market, the pace of sales is actually slowing down, she added, pointing to homes that used to sell in 70 to 75 days now taking 90 days.

Millennials, Not Investors, Hold the Reins

In Montreal, millennials, not investors, currently drive the market, experts said, which helps insulate the city against the type of hyper-growth that led to Vancouver’s current cooldown.

Millennial Montrealers aging into their 30s are building their adult lives, complete with children and pets and the need for more space.

“They’re moving a little bit (away) from the condo scene to single-dwelling homes ... and they’re pushing the market more than investors,” Ms. Rémillard said. Some 30-year-olds are purchasing homes for seven figures after receiving inheritances from grandparents or parents who’ve passed away, she said.

Even in the ultra-luxe sanctum of the Ritz-Carlton, in the historic Golden Square Mile district, where one would expect international investors to flock, the majority of the 45 residential units, or 90%, are owned by Montrealers or Canadians, said Rucsandra Calin, director of residences for the hotel. The branded condos were built as part of the hotel’s C$200 million renovation; since they opened in 2013 and 2014, all but one have been purchased. Six are currently on the market for resale between between C$2.1 million and C$8.6 million, she said. That they drew mostly domestic buyers was a surprise, and an anomaly, since foreigners make up about 80% of the ownership at the five-star hotel’s other residential properties around the world, according to Ms. Calin.

What turned off potential buyers who visited the Ritz from the Middle East, India and China? The size of the units, which are larger and have fewer bedrooms, and strict rules about subletting, guests, and noise, made them less attractive as an investment property that could be rented out to turn an easy profit, Ms. Calin said. Instead, Canadian business owners and those with family connections to the brand bought the units.

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Language was and still is a perceived barrier for many potential buyers who believe they must speak French to survive in the city, but that’s not true, she said—most everyone speaks English.

No Foreign Buyers’ Tax

Unlike Toronto and Vancouver, Montreal has yet to adopt a foreign buyers’ tax, leaving the door open, for now, for investors to take advantage of rewarding currency values, low financing rates, and prime, new condo property coming down the pipeline.

Roustand Ntouko, a senior account representative with the Canadian Mortgage and Housing Corp., or CMHC, said the city has worked with analysts at his organization to determine that the percentage of mortgage transactions by foreigners in the city account for less than 2% of the total, up slightly from 1% a few years ago. He couldn’t say whether the city also looked at cash-only transactions, which are typical for international buyers.

Given the data, “I don’t think in the short-term that kind of tax is going to be implemented,” Mr. Ntouko said.

Other experts anticipate a foreign buyers’ tax could be back on the table within a couple of years, as city officials track and reassess investors’ impact on the robust price growth.

“I think they will do it, because all the other cities did it, but we don’t know when—apparently not this year,” Ms. Calin said.

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Meanwhile, several new mixed-use developments in the works, like the Royalmount mega-mall and the Humaniti project, will flood the market with thousands of upscale condos, hotel rooms and rental units in the near future, testing the strength of luxury demand in Montreal, and the ingredients that make the city attractive for so many newcomers.