On August 2, a new tax that charged foreign real estate buyers an extra 15% on their home purchases went into effect in Metro Vancouver. The move was made to improve housing affordability, and to deter the real estate tax evasion and money laundering practices reportedly running rampant in the city.
What followed has been a flurry of preliminary data, heated debate, and one burning question: is Toronto next?
Real estate analysts are divided on the issue; some feel the tax’s perceived early success is just what Toronto real estate needs. Others say such a move could irreparably harm Canada’s economy. Meanwhile, those on both sides caution that there just isn’t enough data to rush a decision.
Here’s a look at who’s for and against bringing a Vancouver’s foreign investment tax to Toronto – and what it could mean for home buyers.
The Vancouver Effect
When the British Columbia government announced the tax on July 25, it ignited a frenzy; buyers and agents frantically hustled to close in-progress deals before it kicked in on August 2. The B.C. Ministry of Finance reports that on July 29, the last day of business before the deadline, $850 million in residential property transactions from foreign nationals were registered. That’s 55% of all transactions that occurred that day, and 40% of foreign home purchases in the period that has followed.
Following the mad rush, though, were crickets; only 60 foreign property transactions occurred in August, compared to 1,9074 from June 10 – August 1. Vancouver home sales plunged 26% from July to August, and a full 51% from the year before, with the luxury home segment seeing the greatest decline.
Zuwaii, a popular online resource for Chinese investors seeking Canadian real estate, reports interest in Vancouver-area properties dropped dramatically after the tax’s implementation – searches for homes over $1 million have since fallen 81%.
However, those investors are now finding Toronto and Seattle irresistible, with searches surging 143% for those cities. A recent report from Sotheby’s also calls for an uptick in luxury home demand as a result of displaced Vancouver investors.
Those in Favour of a Tax
This spike in interest has policy makers worried. Toronto’s housing market is already too-hot-to-handle, with the average detached home price over $1.2 million. Calls to tax foreign buyers in a similar fashion to Vancouver were made almost immediately.
However, Ontario Finance Minister Charles Sousa says the government is taking a wait-and-see approach to see how the tax plays out. “We want evidence as to what is taking place before we start making any decisions,” he stated in an interview to BNN. “Because they’ll have impacts on other parts of Ontario – not just Toronto.”
But not everyone shares Sousa’s caution. CIBC’s Deputy Chief Economist Benjamin Tal has stated Ontario has “no choice” but to introduce the tax to the market, as inflated prices from foreign demand could push homeownership out of reach for local Torontonians. His sentiments are echoed by Joe Oliver, former Conservative finance minister, who wrote in an editorial to the Financial Post: “Increased foreign buying is going to exacerbate an overheated real estate market, to the detriment of all Torontonians, and at a great risk to the broader economy.”
The Argument Against
Despite growing foreign investment worries, there is a faction who say bringing a tax to Toronto will cause more harm than good to Canada’s economy, as foreign investors are an important source of economic support.
However, the strongest argument against the tax is the lack of long-term data. The presidents of both TREB and the Ontario Real Estate Association have sent letters to Toronto Mayor John Tory and Sousa, stating adding a tax now would be a “knee-jerk reaction”.
Both associations say a better course of action would be freeing up land to increase the supply of homes, including a reassessment of the Places to Grow and Greenbelt programs in Ontario.
According to Jason Mercer, TREB’s lead analyst, the Ontario government isn’t in any place to implement such a measure, since no one currently records foreign buyer activity in the Toronto market.
He adds that TREB is in the midst of polling members to glean a concrete idea of the extent of foreign buying in the city, along with efforts from Statistics Canada and the federal government.
What Can Home Buyers Expect?
At this time, it appears Toronto home buyers and investors will need to wait on these findings, to see just how far foreign investment goes – and whether the provincial government will take action.