Could a tax on foreign buyers, similar to the one implemented in Vancouver last summer, be a possibility in Ontario? The option is on the table according to Finance Minister Charles Sousa, who stated Thursday he’s considering measures to temper rising real estate prices in province.
He says the fact that Toronto home prices have increased 27.7% on average over the last year and recent big bank bubble warnings, have raised fresh concern on the issue, despite the provincial government’s previous stance against a foreign buyer tax.
“A year ago I was thinking, ‘Let market forces prevail.’ But now, I’m concerned about… the ability of people to enter the marketplace,” he stated. “(There are) bidding wars everywhere you go, it appears, and I’m sensitive to that. I’m sensitive to the degree of fast appreciation in the short term and what will that do over the long term.”
Sousa adds that it’s not just Toronto’s market that’s cause for concern, as home sale prices heat up across the Golden Horseshoe; the Hamilton real estate market is anticipated to be this year’s hottest, while a previous report finds price overflow from Toronto reaches as far as the Niagara region.
However, he emphasizes the need for caution, as tinkering with one market could have consequences for others. “If there’s an appreciation happening and you start to poke a bubble, to what extent am I then implication something with unintended consequences of other parts of the region?” he said. “If we do something in Toronto, what does that mean for Hamilton or Guelph?”
Related Read: Toronto House Hunters Searching As Far As Niagara
TREB and OREA Contest Need for Tax
The idea of taxing out-of-country buyers is firmly opposed by several regional organizations including the Ontario Real Estate Association, which says lack of supply is the true issue behind Ontario real estate price appreciation, not speculative foreign buyers.
“The main culprit behind rapidly rising home prices in the GTA’s unbalanced market is housing supply cannot meet demand – not foreign buyers. Home affordability needs to be addressed before millennials are completely priced out of the market,” stated OREA CEO Tim Hudak.
OREA’s stance is shared by the Toronto Real Estate Board, which points to results from its previous survey that find foreign purchasers account for only 4.9% of the market, and that 80% are purchasing homes to use as a principal residence.
In response to Sousa’s comments, TREB released a statement on their position, re-iterating that housing supply is at a 15-year low and condemning what would be a “knee-jerk reaction”.
“The fact that most foreign buyers are looking to purchase a home for their family, for personal use, or to provide a tight rental market with much needed supply is something to be encouraged as these actions are essential to Ontario’s economic success,” stated TREB President Larry Cerqua.
“We can’t forget that immigration is the key driver of population growth in the GTA and , therefore a key driver of economic growth as well.”
He adds that a foreign tax would not only fail to improve affordability, but would also have a negative impact on the national, provincial and GTA economies.
TREB reports that new listings in the GTA declined 12.5% in February, with available inventory at the one-month mark and lower in the most-in-demand neighbourhoods.
“Demand-focussed policy changes will not provide long-term solutions for an affordable housing market,” stated TREB’s Director of Analysis Jason Mercer, who adds that the provincial government should be instead working with municipalities to improve supply via assessing land-use designations, and streamline the approval process for development and permits.
Report Reveals Foreign Buyer Motivations
One of the key issues is that there isn’t hard data on the extent foreign purchasers impact the Canadian market, though a number of bodies, including the CMHC and TREB have tried. Now, a new report from Sotheby’s also minimizes the speculative potential of Chinese buyers.
Compiled with data from Juwai.com, a popular Chinese website used to view and purchase Canadian real estate, the report, titled “China to Canada: International Home Buyer Insights” indicates the following reasons behind foreign purchasers:
40% – Primary residence
25% – Investment property to rent out
15% – Bought for a family member to live in
10% – Investment property
10% – Don’t know
“People look for someone to blame. A very convenient person to blame is the foreign buyer,” said Sotheby’s CEO Brad Henderson. “We’ve seen that happen in Vancouver in particular, and it’s starting to happen more in Toronto.”
The report also found the average property searched had a value of $428,928, and that education was cited as the top reason for moving to Canada at 40%, followed by own use (37.1%), investment (27.2%), and immigration (12.7%).