City of Montreal | Rooming houses purchased at inflated prices

In its purchasing campaign to “protect” rooming houses in the metropolis, the City of Montreal risks paying too much for these properties, according to investors and experts in the real estate world.

The administration of Valérie Plante announced Monday that it had exceeded the milestone of 100 rooms acquired thanks to the right of pre-emption, in seven buildings in different sectors, for a total purchase cost of $17.2 million.

But the prices paid for some rooming houses raise eyebrows. For example, a seven-bedroom property located on Center Street, in the Pointe-Saint-Charles district, was acquired by the City for $1,385,000 last July. However, this house, whose property assessment is $503,000, was sold for $599,000 in 2021.

In another case, an 18-room house on rue Louis-Hémon, in the Villeray district, was paid $1,617,000 by the City, even though its property assessment was $997,000. In 2019, the building changed hands for $762,600.

A construction contractor, who owns a housing stock in Montreal, denounces the fact that the use of the right of pre-emption has the effect of increasing the price of properties subject to it.

According to Louis Boucher, nothing prevents the owner of a rooming house from organizing bogus purchase offers at inflated prices, with the aim of getting the City to loosen its purse strings to buy the building.

“Montreal is getting screwed. A room is not worth more than $100,000 per unit,” he adds.

However, for the property on Center Street, the price paid by the City represents $198,000 per room.

The value of a building covered by a right of pre-emption will indeed increase, confirms François Des Rosiers, professor of urban and real estate management at the faculty of administration at Laval University.

“This is always what happens when a city announces a program to buy land or housing. She shows her colors, says the expert. The owners will do everything to take advantage of it. It’s the same thing when cities plan to increase density around major traffic routes: it’s a message to property owners that they can charge top dollar. »

“Do you want me to make you an offer?” »

“We all have the same reflex when we learn that our building is subject to a right of pre-emption: we burst out laughing,” says Steve Forget, owner of residential buildings in Montreal and Joliette.

One of its properties has just been placed under right of pre-emption by the City of Joliette. “An investor friend said to me with a laugh: “Do you want me to make you an offer to buy $1.4 million on your $900,000 building?” » he says.

Among the rooming houses that Montreal purchased, some were paid a little more than the municipal assessment, which is more in line with what we observe in the market. For example, a property on Wellington Street was recently acquired for $590,000, even though its property assessment is $545,800.

According to data provided by the Professional Association of Real Estate Brokers of Quebec, plexes in Montreal sold, in 2023, 10% more than the property assessment, a sharp drop compared to 2022, when sales prices exceeded of 49% the property assessment.

But the head of housing on the executive committee, Benoit Dorais, admits that the risk of Montreal paying too much exists. There is no guarantee that owners will not use schemes to drive up prices, he says.

“We cannot protect ourselves against those who would like to abuse public powers,” recognizes Mr. Dorais.

In fact, was the City cheated during these purchases?

They take into account the sector, the condition of the building, of course, but also analyze the purchase offers submitted to ensure that they are legitimate and that they are not unfair tactics, assures the elected.

Canceled transactions

Thus, we refused to exercise the right of pre-emption during two transactions involving rooming houses over the past year, reveals Benoit Dorais, because we judged that they were not good deals for the City.

In these two cases, the transactions ultimately never took place, but there is nothing to suggest that they were offers of convenience, he adds.

The City of Montreal’s motivation for placing rooming houses under right of pre-emption and purchasing them is to ensure that these accommodations, which are often rented at affordable prices and allow certain people to avoid the roaming, remain well managed and are protected from speculation, explains Mr. Dorais each time an acquisition is announced. Management of the rooming house is entrusted to an NPO specializing in housing, following the purchase.

On the side of the opposition at city hall, we are calling for the establishment of mechanisms to avoid a surge in prices.

“As soon as the right of pre-emption came into force, we suspected that there could be problems of speculation and bidding wars. Although it is a great tool, the right of pre-emption is not perfect and does not provide for a procedure for controlling sales prices,” underlines Julien Hénault-Ratelle, opposition housing spokesperson.

Four rooming houses purchased by the City

Rue Louis-Hémon, 18 rooms
Price paid by the City: $1,617,000
Municipal assessment (2021): $996,600

Center Street, 7 bedrooms
Price paid by the City: $1,385,000
Municipal assessment (2021): $503,100

Gordon Street, 85 rooms
Price paid by the City: $8,100,000
Municipal assessment (2021): $3,993,600

Rue Plessis, 17 rooms
Price paid by the City: $2,418,000
Municipal assessment (2021): $1,935,000