Canada

#1 PETER | June 10, 2010

Montreal yields are high because Quebec laws are particularly pro-tenant; and if you want to get on in Quebec you really need to speak French.

For example if you want your tenant to leave you have to follow a VERY precise sequence of notices (use recorded delivery) but even then they have the right to appeal.

Next you'll get a judge (actually less senior than a judge more like in English you would call a solicitor or such). The proceeding will most probably all be in French. You'll have to prove you're about to move back into the property (because you have no where else to live) or you're doing renovations (with a work order to back it up) or you're selling the property in order to get the tenant out.

It's not always easy; but the challenges clearly are worth the rewards as Montreal is a very attractive city; with a wonderful quality of life. And as an investor yields as you correctly point out are great but even better it's been appreciating slowly but steadily more so than any other major city in Canada (which suffered wild swings in 2008). And even today it is STILL significantly below fair value vs wages compared to other Canadian cities.

Underpinning this are very strong fundamentals of employment and population growth.

Employment:
Montreal has a thriving aerospace, it's fair share of blue chip HQs (less than once before after the pro-French stuff took hold but still companies like Air Canada, L'Oreal, Ubisoft, Bombardier, Rolls-Royce and many more are HQed in Montreal).

Tech companies benefit from generous subsidises too – especially computer games and multimedia which are subsidised to the tune of nearly 50% of payroll... all paid for not by debt but in a round about way from an abundant free and green energy source in the form of government owned hydro power in the north of Quebec.

Finally health care is great. Three new super hospitals being built in the next 3 years.

Also very much a university town with Canada's top McGill campus plus many more like Concordian (popular with international students; amazing new glass high-res campus downtown).

Oh and finally Montreal's bike sharing system was so good London, UK and Boston ordered Montreal to make one for them too.

Population growth:
Since the late 90s Montrealer's pay $7/day for the child care. And even if you're self-employeed women get annual maternity leave equivalent to 75% of their previous year's earnings.

Result. Baby boom since the 1990s in Quebec. And given they all have to go to school in French more than elsewhere in Canada (which losses talent to the States to a fair degree) they are more prone to stay in Quebec boosting demand for housing.

Again these government incentives (child care and parental benefits) are not particularly subsidised by DEBT but by assets like hydro which also power Rio Tinto smelters up North bringing further cash.