Multi-family investors are back!
After two years of calm in the multi-residential investment market, investors have been back in force since the end of the summer. It is not uncommon to see several promises to purchase on the same project or building put up for sale. The scarcity of income properties only accentuates the situation.
Obviously, the reduction in the key rate by the Bank of Canada, and therefore interest rates, had a direct impact on the financing of real estate projects, particularly regarding income properties.
For example, on the Island of Montreal, we note a 39% increase in transactions if we compare September 2023 and September 2024. In the Estrie region, it is 42%.
In Quebec, if we compare the cost of housing in September 2023 and 2024, for 12 to 49 housing units, we note an increase of 10%, and 8% for 5 to 11 housing units.
By being at the heart of the market for several years, I am able to take the pulse of sellers and buyers. Unsurprisingly, my seller clients are less flexible with sales prices since the drop in interest rates. The market is to their advantage because as soon as a building is put up for sale, we receive promises to purchase in less than 24 hours.
When is it best to invest?
Is it better to acquire a property when interest rates are falling and investors are competing in the market or when rates are higher and sellers have to look longer for a buyer and are willing to talk? It depends on your point of view. Personally, I made an acquisition two years ago, during a lull, and I was able to further negotiate the sale price and conditions. The seller was much more open to chat. On the other hand, when the market is active, sellers are much more demanding and selective.
Sustained demand for rental housing
Demand for rental housing remains strong in large cities like Montreal, Quebec, Longueuil, Sherbrooke, etc. Several factors contribute to this dynamic. Quebec continues to receive a significant number of new immigrants, which increases the demand for housing.
The resumption of business travel and the flexibility of teleworking have created an environment where many workers are seeking housing in both urban and suburban areas.
Income property prices
Although down slightly since their peak in 2022, income property prices remain relatively high, especially in large urban areas. This is due to the continued demand for real estate assets that generate stable income. In addition, the still high construction costs made it difficult to carry out new rental property construction projects.
2025 Forecasts
If the trend continues and interest rates continue to fall, income property prices could still be supported by constant demand and the scarcity of inventory. In Ottawa, the Parliamentary Budget Officer expects the Bank of Canada to reduce its key rate to its “neutral level” of 2.75% in the second quarter of 2025.
The interest of large institutional investors in the real estate sector could continue to grow, which could impact the competitiveness of the market and increase prices in certain regions.
We anticipate a very active 2025 multi-residential real estate market. We could see an intensification of bidding wars due to increased competition between investors, strong rental demand, changes in interest rates, and local or national regulations. Investors will have to be vigilant and ready to adapt their strategies according to the evolution of the market and the economic factors that shape this sector.
I can confirm that in my practice, since the beginning of the fall of 2024, I have rarely seen such a vigorous market, and something tells me that in 2025, it will be even more so. The word vacation will be a thing of the past, at least for a while. The market is energizing and there is hope among investors.
Happy buying!
by Fanny Rooseboom
Executive Vice President
PMML
Translated by the author
