Speculation tax changes unlikely to dampen Ontario housing market, experts say

Real estate experts say Ontario’s decision to raise and expand foreign buyer taxes won’t do much to cool down the province’s hot real estate market.

Moving the non-resident speculation tax to 20 percent from 15 percent and applying it outside the Greater Golden Horseshoe is the centerpiece of the More Homes for Everyone Act, which the county announced Wednesday.

The tax changes targeting non-resident homebuyers came with closing a loophole that gave discounts to foreign students who complete at least two years of full-time study after purchasing a home and foreigners who spend uninterrupted full-time in Ontario. worked for a year after purchase.

The bill also requires the province to work with municipalities to address speculation, spend $19 million over three years to reduce backlogs with the Ontario Land Tribunal and the Landlord and Tenant Board, and speed up city planning processes.

But don’t expect the cornerstone — the increased non-resident speculation tax that went into effect Wednesday — to drive home prices down or quell the bidding wars that have become the norm in the market, experts say.

“Everyone in the industry, myself included, is well aware that this won’t really affect the market,” said Michelle Gilbert, a Toronto real estate agent with Sage Real Estate Ltd.

Tax seen as ‘cost of doing business’, says broker

Gilbert says Statistics Canada data shows that five years ago, non-residents owned only about 3.4 percent of all homes in Toronto, so the measure affects a small fraction of buyers.

Foreign buyers may have been initially deterred from buying real estate in the region when the tax was first introduced in 2017, but their attitudes have changed since then, she said.

“Foreign investors quickly realized, even with a dip, that our market is still a safe haven for their money and they already see that tax as just the cost of doing business,” she said.

“So if I add up this extra five percent, I don’t expect it to affect how many foreign buyers do invest in, say, the Greater Toronto Area.”

The offering is often heralded as the most instrumental measure to take the heat out of the markets, but BMO Capital Markets chief economist Douglas Porter warns it’s a “slow beast” that takes “years, not months” to assert itself. . (Katherine Holland/CBC)

Inflation pushes up prices, economist says

While BMO Capital Markets chief economist Douglas Porter said he will be open to the fallout from the tax hike, at this point he isn’t convinced it will have a major effect.

He believes that non-resident investors were a big source of the heat the Toronto and Vancouver markets saw in 2016 and 2017, around the time when foreign buyer taxes were introduced in both provinces.

Policymakers had “massively undervalued” the way these investors fueled the heated conditions, he said.

However, he believes that the dominant force in Ontario’s current market is intense inflationary pressures, which have also pushed prices in rural and suburban markets for the past two years.

But he doesn’t downplay the impact these buyers can have.

“Many point to the supposedly low market share of such investors, but even a small increase in demand can have an inordinate effect because there are no sales on the other side,” he said.

“These are just pure new buyers and they tend to be pretty aggressive in terms of what they pay, and from what I’ve seen they tend to push the price up in neighborhoods and markets they want to invest in.”

Higher interest rates would cool the market, experts say:

Porter and Gilbert say there are many steps the county could take to cool the market, most notably the GTA, where the average sales price for a home crossed $1.3 million in February, from just over $1 million. in February last year.

The offering is often heralded as the most instrumental measure to cope with the heat of the markets, but Porter warns it is a “slow-moving beast” that takes “years, not months” to weigh in on the market.

“The only thing that is very simple and can be implemented relatively quickly is higher interest rates,” he said. “Unfortunately, it has huge implications for all sorts of other sectors of the economy.”

The county could also introduce a broader speculation tax, but Porter said, “That’s some pretty hard drug and it doesn’t seem like they want to go down that road.”

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