In 2017, the previous provincial Liberal government introduced the Non-Resident Speculation Tax (NRST), or foreign buyer tax as it is commonly known, as part of the Fair Housing Plan. At that time it curbed house price growth and had an interim impact on housing affordability. Now for the second time this year, the Ford government has enhanced the foreign buyer tax to extend across the entire province and hiked it to 25% on October 25, 2022. This is all part of an ongoing effort at all levels of government to make housing more accessible across the province. But will it have a noticeable effect?
Home sales as reported by the Toronto Regional Real Estate Board (TRREB) were already down 44% year-over-year (y-o-y) in September with home prices for detached homes dropping 10% y-o-y. Semis and townhouses also dipped by 7% and 1% respectively. Only condos seem to be holding their own despite the downward pressure of the relentless Bank of Canada rate hikes and the impact on purchasing power. Will the foreign buyer tax assist in a market that has already taken such a slowdown? With more economic uncertainty on the horizon, prospective buyers and sellers are more cautious about getting into the market. In a recent Zoocasa survey, 56% of respondents agreed or strongly agreed that interest rate hikes had a negative impact on their interest in real estate.
Impact of Non-Resident Speculation Tax on Home Prices
The NRST was introduced in an effort to reduce market speculation and applies to homes purchased anywhere in Ontario by foreign nationals, foreign corporations, or taxable trustees. While interest rates have slowed both sales and new listings in many markets, massive drops in y-o-y average home prices are not as prevalent across all cities with some like Ottawa and Barrie Simcoe showing some increases y-o-y, according to CREA. Considering average home prices are still running high, however, an additional 25% sales tax could be significant in deterring speculation. Especially in some higher-priced markets like Oakville where the average tax could run a foreign buyer almost $400,000 on top of the home’s average price tag of $1,534,810. See how the foreign buyer tax affects purchase prices in these Ontario markets.
While these price points may seem significant, according to a 2018 StatsCan report on non-resident home ownership in Ontario, it only sat at 2.2%. In fact, both British Columbia and Nova Scotia had higher rates of non-resident home ownership than Ontario. While any efforts to provide more housing solutions to Ontario residents is important, it is unlikely this latest policy will have a major impact on market forces.
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