The Real Estate Market in the Province of Quebec, Canada

Introduction

Canada’s real estate market in 2024 and early 2025 has been shaped by an unprecedented convergence of policy shifts, legislative reforms and socio-economic pressures. At the federal and provincial levels, sweeping fiscal and regulatory changes – ranging from proposed tax reforms to competition law amendments – have contributed to both heightened uncertainty and fundamental recalibrations in investor behaviour. Meanwhile, the intensifying housing crisis, which is particularly acute in urban centres like Montreal, has amplified the urgency for structural solutions and sustainable development practices. Although the effects of the recent shift in the geopolitical sphere caused by the changes in the United States’ economic policies have yet to be felt on the Canadian real estate market, the first months of 2025 have also been characterised by economic uncertainty.

Four key developments are at the forefront of this shifting landscape in the province of Quebec.

• First, the proposed increase in the capital gains inclusion rate created a ripple effect in investment decisions, prompting a wave of asset sales, project delays and market volatility before its eventual cancellation in March 2025.
• Second, substantial amendments to the Competition Act (R.S.C., 1985, c. C-34) introduced new constraints and compliance requirements that directly impact the structuring of real estate transactions, particularly in relation to restrictive covenants, exclusivity clauses and merger oversight.
• Third, ongoing efforts to confront the housing crisis through federal legislation prohibiting the purchase of certain properties by non-Canadians through municipal regulation and incentives have triggered intense debate about the effectiveness of current policies and the role of private developers in delivering affordable and social housing.
• Lastly, the government has extended the period during which non-Canadians are not allowed to purchase certain types of residential properties until 1 January 2027.

Together, these developments reflect a broader transformation of the Quebec real estate environment, in which policy clarity, regulatory compliance and social responsibility are becoming as critical to market participants as profitability and growth. The following sections examine each of these trends in detail, offering insight into their implications for developers, investors and other stakeholders operating in today’s evolving Quebec real estate market.

Increase in the capital gains inclusion rate on eligible investments

In Canada, capital gains taxes apply when individuals or corporations sell eligible investments – assets acquired with the intention of generating income or appreciating in value. This includes real estate held for investment purposes.

On 16 April 2024, the federal government released its budget for the year, introducing key changes to capital gains taxation. One of the standout proposals was raising the capital gains inclusion rate from 50% to 66.67%. This increased rate would apply to annual capital gains surpassing CAD250,000 for individuals, and also to all capital gains generated by corporations and the majority of trusts. The implementation of this change was planned for mid-year, starting 25 June 2024.

Shortly thereafter, on 18 April 2024, the Quebec Ministry of Finance announced its intention to harmonise Quebec’s tax legislation with the federal proposals.

The announcement of the proposed capital gains tax increase in the 2024 budget prompted many Canadians to act quickly, selling off investments, including real estate, before the 25 June 2024 implementation date to take advantage of the existing 50% inclusion rate. This wave of early selling led to a spike in listings and may have temporarily driven prices down. However, the federal government’s later decision to cancel the tax hike caused confusion and market disruption. Real estate investors, particularly those involved in development projects, may have delayed or reconsidered investments amid the uncertainty, potentially slowing new construction and affecting housing supply in Quebec.

For transactions already underway, some individuals even accelerated their closing dates to take advantage of the 50% inclusion rate. Others who were not planning to sell immediately considered restructuring their holdings before 25 June 2024, through pre-closing reorganisations. This allowed them to realise any unrealised capital gains and preserve the 50% inclusion rate by executing internal crystallisation transactions.

On 31 January 2025, the Canadian Ministry of Finance announced its intention to delay the increase to the capital gains inclusion rate until 1 January 2026, while still moving forward with the planned increase to the lifetime capital gains exemption and the introduction of the Canadian Entrepreneurs’ Incentive. The Quebec Ministry of Finance followed suit, confirming it would align with the federal government on both the postponement and the maintained implementation of the other measures.

However, on 21 March 2025, the federal government reversed course entirely and cancelled the planned capital gains inclusion rate increase. As a result, the rate remains at 50%. This reversal caused confusion for taxpayers and advisers who had already taken steps based on the expected increase, often incurring costs or missing out on better timing. The sequence of announcement, delay and cancellation contributed to a sense of instability that may impact the real estate market in Quebec in the near future.

Competition Act

In an effort to strengthen the rules and regulations currently in force in Canada with respect to competition matters, amendments to the Competition Act (R.S.C., 1985, c. C-34.) (the “Act”) were enacted on 20 June 2024, to broaden the scope of provisions related to abuse of dominance and civil collaboration provisions (the “Amendment”). These changes aim to increase the Competition Bureau of Canada's ability to protect competition and prevent mergers and anti-competitive behaviours. These changes also impact how the Competition Bureau addresses property controls in commercial real estate, more specifically as they pertain to exclusivity provisions in commercial leases and restrictive covenants on land that prohibit purchasers or owners of commercial properties from using such property to operate businesses that compete with a previous owner.

As of 15 December 2024, the Competition Bureau can intervene in agreements between two non-competing businesses if it considers that one of the main purposes of the agreement is to prevent or significantly lessen competition (Section 90.1(1) of the Act). This authority extends to all types of contracts, including leases and deeds of sale; from the outset, the Competition Bureau presumes that a restrictive covenant is anti-competitive and unjustified, barring exceptional circumstances, which therefore puts the onus on the parties to justify it.

The recent changes to the Act have far-reaching consequences for Canada’s commercial real estate sector. With stricter regulations on restrictive covenants, exclusivity clauses and mergers that heighten market concentration, there is now increased focus on monitoring anti-competitive behaviour in real estate deals and ownership structures. For landlords, developers and investors, this necessitates a thorough review of standard contractual provisions and existing agreements to align with the updated legal standards and steer clear of the substantial penalties introduced by the amendments.

The Amendment allows the Competition Bureau to have more control over mergers that significantly increase concentration or market share. While the Competition Bureau has the authority to review any merger in Canada, it must be notified in advance of mergers that exceed certain financial thresholds, referred to as Notifiable Transactions under Part IX of the Act. This advance notice enables the Bureau to conduct a review and, if necessary, challenge a merger before the Competition Tribunal or seek appropriate measures prior to the transaction’s closing. Under the Amendment, a merger is now presumed to be anti-competitive if it significantly increases concentration or market share (Section 91 ss. of the Act). The Amendment also introduces enhanced measures to combat deceptive marketing practices.

As of 20 June 2025, the Amendment allows any person to seek permission to file a complaint before the Competition Tribunal regarding anti-competitive agreements in order to seek financial penalties and/or the annulment of contractual terms before the Competition Tribunal. Landlords, tenants and competitors can report anti-competitive behaviours to the Competition Bureau, which allows whistle-blowers to remain anonymous. The test for leave to bring a private action has been expanded such that the Competition Tribunal may grant a private party leave to make such an application if it has reason to believe that the applicant is directly and substantially affected in the whole or part of the applicant’s business by any conduct referred to in one of those sections, or if the Tribunal is satisfied that it is in the public interest to do so.

The extent of remedies and sanctions that can be imposed by the Competition Bureau take the market power of the party in question into consideration. Abuse of dominance sanctions under Section 79(3.1) of the Act provide that the penalty can be up to the greater of:

• CAD25 million (and CAD35 million for each subsequent order);
• three times the value of the benefit derived; or
• 3% of the person’s annual worldwide gross revenues.

For agreements or arrangements that substantially prevent or lessen competition under Section 90.1(1.3) of the Act, said section provides that the maximum penalty is the greater of:

• CAD10 million (and CAD15 million for each subsequent order);
• three times the value of the benefit; or
• 3% of global revenues if the benefit cannot be reasonably calculated.

The fact that existing agreements are not only not grandfathered but retroactive adds urgency to the review of exclusivity clauses and restrictive covenants. With expanded rights for private parties to challenge anti-competitive conduct and the potential for serious penalties, commercial real estate players must now navigate a more regulated and litigation-prone environment. Ultimately, these reforms aim to foster a more dynamic, fair and accessible market – but they also introduce legal uncertainty and new compliance risks that industry stakeholders cannot afford to ignore.

Housing crisis

The housing crisis reached a historic peak in 2024, with the vacancy rate falling below 3% in all municipalities across Quebec – the lowest in the province's history, as reported by the Front d'action populaire en réaménagement urbain (FRAPRU). This shortage has intensified competition for available units, leading to increased rents and heightened housing insecurity, particularly among low- and moderate-income Canadians.

The housing crisis has been a longstanding issue, prompting periodic implementation of various laws and regulations aimed at enhancing housing conditions and addressing the challenges within the sector.

For instance, in January 2021, the City of Montreal (the “City”) introduced the by-law for a Diverse Metropolis (the “By-Law”), aiming to preserve neighbourhood diversity and promote access to adequate housing for all residents. This urban planning regulation conditions the issuance of permits for housing construction on the inclusion of certain types of housing, including social, affordable and family units.

• Social housing is typically owned by non-profit organisations, housing co-operatives, government bodies or paramunicipal corporations. It is intended to serve individuals with specific housing needs or those from low- to moderate-income households. While most social housing is developed under government subsidy programmes, it can also be built independently of such funding.
• Affordable housing refers to units where the sale price or rent is subject to a long-term affordability commitment – typically at least 20 years. Unlike social housing, it does not need to be owned by a non-profit or co-operative and is not limited to any specific group of residents. These units are commonly built through government programmes but can also be developed privately.
• Family housing is defined as a unit with at least five rooms, including three bedrooms, and a total floor area sufficient to accommodate a family. According to the By-law, the minimum required size is 86 square metres in some areas and 96 square metres in others, depending on the sector in which the housing is located.

Developers undertaking new projects are required to enter into agreements with the City to allocate and contribute to the supply of these housing types, either by constructing new units, transferring land or buildings, or providing financial contributions. However, a December 2023 report by the Association des Professionnels de la Construction et de l'Habitation du Québec (APCHQ) indicated that the By-law's implementation has not achieved its intended objectives. Instead, the increased hoops that developers are obliged to jump through to get projects approved has led to a slowdown in housing projects, consequently resulting in making it more challenging for citizens to find social or affordable housing.

This unintended consequence was not totally unforeseeable as private developers expressed reluctance to include such housing in their projects as it would negatively affect the profitability of their projects and increase construction costs. Rather than participate in such programmes, many developers have instead opted to pay penalties rather than comply with the By-law's requirements. In March 2024, the City announced modifications to the By-law to reverse these unintended consequences by trying to alleviate the financial burden on developers and accelerate the construction of social and affordable housing.

On another note, over the last year, the Canada Mortgage and Housing Corporation (CMHC) has announced several new housing projects designed to tackle Canada’s ongoing affordability crisis, including initiatives available in cities across Quebec. One such initiative is the Accelerated Housing Fund, which aims to speed up housing construction by reducing permit delays and updating local zoning policies. These types of initiatives funded by the federal government are part of its broader strategy to build more homes quickly and increase competition in the housing market, ultimately helping to lower housing prices.

Prohibition on the Purchase of Residential Property by Non-Canadians Act

To help preserve the housing supply, in January 2023 the federal government of Canada enacted the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Prohibition Act”), aiming to increase housing availability and affordability by restricting non-Canadians from purchasing certain types of residential properties in census agglomerations and metropolitan areas.

Initially for a period of two years until 1 January 2027, the prohibition has been extended for an additional two years in response to ongoing housing supply challenges.

Violations of the Prohibition Act can result in fines and even court orders obliging the resale of the property in question without profit.

Conclusion

Quebec's real estate market is undergoing a significant transformation, driven by evolving tax policies, amendments to competition laws, geopolitical shifts and an escalating housing crisis – particularly in urban hubs like Montreal. While the proposed capital gains tax hike was ultimately abandoned, the turmoil it caused led to investor uncertainty and hasty decision-making, highlighting how unpredictable policies can undermine market confidence. Meanwhile, revisions to the Competition Act are reshaping the landscape of commercial real estate by imposing stricter controls on mergers and anti-competitive behaviour. These changes aim to foster fairness but also introduce new challenges for developers and landlords navigating the complexities. As for the housing crisis, addressing it efficiently calls for coherent policies, enhanced collaboration and a careful balance between regulatory measures and practical development needs. Sustainable solutions must be flexible, grounded in reality and designed to stand the test of time.