When the 2024 Federal Budget was announced in April, one change stood out to cottage owners: the capital gains inclusion rate was increased from one-half (50%) to two-thirds (66.7%). For those who own a secondary residence, like a cottage, this means that if you sell your secondary property after June 25, 2024, you will now be taxed about 66.7% of all capital gains above $250,000.
But even before this change was announced, Ontario’s cottage country was heating up for an active spring season. Home prices have increased markedly since January and new listings are flooding the market. So what’s prompting this enthusiasm? We talked with local eXp real estate agent Karen Hanes to better understand what buyers and sellers can expect this season.
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Benchmark Prices in Ontario Cottage Country Rising Faster Than Major Markets
Zoocasa analyzed how benchmark home prices (which take all property types into account) for 11 markets in Ontario’s cottage country have changed since January of this year, and found that all but one market has experienced price growth of over 6% in just four months. Notably, benchmark prices in Georgian Bay, Tiny, Lake of Bays, and Muskoka Lakes have risen by over 11% since January 2024. In Muskoka Lakes, that equals a more than $140,000 increase, while in Lake of Bays and Georgian Bay, the increase exceeds $90,000.
Benchmark price growth in some of Ontario’s cottage country is more than double that of other major Canadian markets. In Toronto, for example, the benchmark home price increased by 5.9% from January, and in Vancouver, it has increased by 3.8%.
With that being said, more homes are on the market this year than last year, so that’s keeping prices from skyrocketing. “The spring market is improving as people are optimistic,” says Hanes. “Homes are selling faster than last year, but it does depend on the house. If it’s overpriced, it’s going to sit, however, if it’s priced right it won’t linger on the market for too long.”
Focusing on waterfront properties tells a slightly different story. Though the median price for all waterfront properties in the Lakelands has increased since January, by 6.2%, year-over-year the price has dropped by 1.9%. In Lakelands Central (which includes Midland, Orillia, Oro-Medonte, Penetanguishene, Ramara, Severn, Springwater, Tay, and Tiny) and Lakelands North (which includes Algonquin Highlands, Bracebridge, Dysart et al, Georgian Bay Township, Gravenhurst, Highlands East, Huntsville, Lake of Bays, Minden Hills, Muskoka Lakes, Parry Sound, and The Archipelago), the median price has dropped year-over-year by 4% and 0.7% respectively. In Lakelands West (which includes Clearview, Collingwood, Grey Highlands, Meaford, The Blue Mountains, and Wasaga Beach), which has much fewer properties on the market, the median price of waterfront properties increased by 16.1% to $905,000.
Rising Inventory Expanding Choices for Cottage Buyers
“I’ve noticed an uptick in buyers from last spring, and with more listings on the market, buyers have more choice than before. Though that higher inventory means it’s going to take a little more effort from sellers to ensure their properties get noticed,” explains Hanes.
Looking at waterfront properties in particular, which is where most cottage transactions occur, we can see a significant increase in the number of homes for sale. In Lakelands North, new listings increased year-over-year by 61% in April. In Lakelands West and Lakelands Central, new listings rose year-over-year by 48.6% and 40% respectively.
Despite sellers actively jumping into this year's spring market, some buyers are still on the sidelines. “The sellers are there and ready, but buyer enthusiasm is still building as many people wait for interest rates to drop. Fixed rates have already come down with the anticipation of the Bank of Canada lowering rates so that is helping to boost the market,” adds Hanes.
Still, year-over-year waterfront home sales are up in both Lakelands West and Lakelands North, though it’s important to note that with a small number of transactions happening in Lakelands West and Lakelands Central, percentage changes can appear larger than they might actually represent in terms of overall market activity.
Are Changes To The Capital Gains Tax Impacting Cottage Country?
With all of these new listings coming to market, is the capital gains tax to credit? It’s difficult to pinpoint the increase in inventory on one specific reason, especially as spring is normally the season when sellers and buyers come out in droves. But the capital gains tax may be putting additional pressure on those who weren’t sure if they wanted to hang onto their secondary properties.
“I’m personally not seeing the changes to the capital gains tax resulting in any substantial impact from sellers,” notes Hanes. “The short notice left little time for preparation, so while I am getting questions about it, there’s no real sense of urgency from sellers. If this had been announced last year, the impact might have been different, but right now, it doesn’t seem like a major factor in property decisions.”
In fact, according to the Budget 2024, only 0.13% of Canadians with an average income of $1.4 million are predicted to pay more in any given year because of the increase in the capital gains inclusion rate.
Prospective cottage country buyers shouldn’t be deterred from browsing for a summer retreat just because of the change in the capital gains tax, especially with so much extra inventory available on the market now. “This is an excellent time for buyers, especially those able to cash buy because there’s a lot more inventory to choose from. The best properties will be the first to go, so the sooner you get into the market the better selection you’ll have,” advises Hanes.
If you’re considering investing in cottage country this spring, let us help! Contact us today to speak with a trusted realtor about the home-buying or selling process.
