BC Foreign Buyer Tax Under Review
The controversial 15-per-cent foreign buyer’s tax introduced in Vancouver last August is to come under review, as the British Columbia provincial government assesses whether recent measures to stabilize the housing market have had the right effect.
Whether the new tax-free first-time home buyer loan program is working will also be up for discussion; analysts will review real estate transaction data to determine whether the changes should continue, be altered, or removed altogether.
But it’s highly unlikely the foreign buyer tax will be on the chopping block as BC Housing Minister Selina Robinson alluded to the Toronto Star.
“I don’t know that we have any plans to eliminate it. There’s certainly enough data that would help us to understand its value and so, we have to look at that data,” she said.
Foreign buyer activity in the province fell from 13.2 per cent of all real estate transactions prior to the tax, to just 2.6 per cent by year end. It also seemed to effectively cool overall sales; they dropped 39.4 per cent and prices slid 2.2 per cent by December 2016, reported the Real Estate Board of Greater Vancouver, with the biggest dip in the detached home segment.
The province softened the tax’s rules last December, exempting newcomers to Canada with permits to work in BC. Those who obtained Canadian citizenship or permanent residency within a year of purchasing their property are also now eligible for a full rebate on the tax.
Whether the province concludes the tax has been effective could have implications for the Ontario market as well, as a similar Non-Resident Speculation Tax was introduced in the province in April as part of the new Fair Housing Plan.
A Pet-Friendly Focus for Toronto Condos
As the population surges in Toronto’s core – 10,000 people move downtown annually, according to the City – so too does the number of four-legged residents. In fact, there are an estimated four to eight pets living on each floor in all Toronto condos.
But housing an influx of fur babies poses challenges to condo maintenance, from claw-induced wear and tear to standoffs over doggie do-do. That’s led the City to create guidelines in hopes to make condo life more pet-friendly – for mutts and humans alike.
Consultations are to begin this year, with the goal of implementing guidelines by next summer. So far, top pet owners’ requests include better ventilation for cat litter boxes, off-leash outdoor runs, and ground-level dog washing stations.
GTA Home Sales Down 40%: TREB
The number of homes sold in the Greater Toronto Area fell by 40.4 per cent in July, in the three-month wake of the Ontario Fair Housing Plan – new housing rules designed to calm the real estate market. Average prices also slid by 6 per cent from last month, though they’re up 5 per cent over the course of the year. The average cost of all home types combined was $746,218 in July.
Tim Syrianos, TREB’s president, said the impact of the new rules is more of a mental phenomenon, as fearful sellers pull their listings from the market and buyers opt to wait out until prices soften further.
“Clearly the year-over-year decline we experienced in July had more to do with psychology, with would-be home buyers on the sidelines waiting to see how market conditions evolve,” he said.
Vancouver Sales Slide Further in July
Last month’s numbers are in from the Real Estate Board of Greater Vancouver, and they reveal the region’s housing market continues to slow. Year over year sales have dropped 8.2 per cent with 2,960 homes sold, and a full 24 per cent from June’s activity.
Inventory continues to rise, with 10.1 per cent more homes available for sale compared to a year ago.
Jill Oudil, REBGV president, says conditions are uneven across the Greater Vancouver area, with certain areas and housing types outperforming others and that activity is now closer to historical norms.
“Housing demand is inconsistent across the region right now. Pockets of the market are still receiving multiple offers and others are not,” she says. “For example, it’s taking twice as long, on average, for a detached home to sell compared to booth townhomes and condominiums.”
Detached houses are staying on the market for an average of 35 days, compared to 20 for townhomes, and just 17 for condos. High-rise living has been outpacing the luxury segment for months, as affordability remains stubbornly out of reach for most buyers; the Home Price Index Composite for all home types hit $1,019,400 , an 8.7-per-cent increase from 2016.
The sales-to-active-listings ratio remains high at 32.2 per cent (above 20 per cent puts upward pressure on prices, while below 12 per cent depresses them). By home type, detached homes had a ratio of 16.9 per cent, compared to 44.9 per cent for townhomes, and a huge 62 per cent for condos. And, while sales for all home types were down compared to peak 2016, detached saw the greatest downturn at 11.9 per cent, at 949 sold at an average price of $1,612,400 (+1.9 per cent). Condo sales were down 8.4 per cent, with prices up a sizzling 18.5 per cent to $616,600, while Vancouver townhouses moderated just 0.7 per cent at an average price of $763,700.
Cooling Market Could Squeeze Government Coffers
Canada’s hot housing market isn’t just a main point of conversation or media fascination – it’s also a top money maker for all levels of government, reveals data from Statistics Canada. In fact, the cash raised from real estate transactions – including taxes, fees, and commissions – account for 1.9 per cent of the national GDP pie – more than the 1.6 per cent contributed by fishing, agriculture, hunting and forestry combined.
Land transfer tax, one of the most reviled closing costs, is especially lucrative for municipalities and provinces. A study from the Financial Accountability Office found revenue for the Ontario government from housing costs grew 40 per cent, from $0.6 billion to $2.1 billion between 2012 and 2015, and even helped halve its projected deficit from $4.3 billion to $1.9 billion.
So how will the considerable sales slowdown in Ontario affect government coffers? The FAO forecasted that even a 10 per cent drop in the housing market could lead to a $1.2-billion drop between 2017 – 2018.
High Home Prices Keep Adult Kids in the Nest
Last week, a CIBC poll revealed 47 per cent of boomers with adult kids at home would pay up to $24,000 to help them move out. Now, new census numbers from Statistics Canada show it may be a worthy expense – the number of Canadians aged 20 – 34 still living at home has reached 34.7 per cent – a 33.3-per-cent increase from the 2011 census.
Ontario leads the way for full nesters at 42.1 per cent, and it’s most pronounced in pricey Toronto, where a whopping 47.4 per cent – nearly one in two – of young adults live at home.
This is in turn skewing family formation, says Stats Can, with only 41.9 per cent of this age group having families of their own, compared to 49.1 per cent in 2001. It has also led to a greater number of multi-generational households; homes with at least three generations living in them rose 38 per cent.
“The high proportion of young adults living with her parents in Ontario is most likely the result of a combination of economic realities, including the high cost of housing and cultural normal that favour young adults living with their parents,” writes the Crown research institute.
Is Your Basement Rental Breaking the Law?
Renting out a portion of your home can be an effective way to help pay your mortgage or afford a bigger home, and it’s a popular tactic: a total of 11 per cent of all homes in British Columbia, Alberta, and Ontario have a secondary suite within them, according to a survey by Square One Insurance Services. Respondents said they used the rentals to help with extra income (40 per cent), offset their mortgage (34 per cent), or for companionship (14 per cent).
There’s just one problem – 17 per cent of those suites aren’t up to snuff. While rules differ depending on the municipality, there are a number of reasons why secondary suites could be considered illegal, says the report. For example, in Toronto and Vancouver, only one unit is allowed per detached house. Other reasons include:
- Zoning restrictions
- Building code violations
- Unit size restrictions
- Minimum parking requirements
- Inspection and licensing compliance
The report admits the number of illegal suites could be even higher, as respondents may have been reluctant to disclose whether they have one.
By province, Ontario has the most illegal suites at 21 per cent, followed by BC at 15 per cent, and Alberta at 14 per cent.
Daniel Mirkovic, Square One president, says his firm decided to run the poll after noticing an increase in inquiries around insuring secondary suites.
“We wanted to understand what was driving this increase. We also wanted to understand how house owners are coping with municipal laws relating to rental suites in single-family homes,” he stated.
He adds that given the rental challenges experienced in some the nation’s largest cities, more could be done to ease secondary suite restrictions, and improve rental supply.
“Most municipal regulations for secondary suites ensure residents have adequate and safe housing options. But some, like the one rental suites per single-family house, are just outdated,” he says. “It’s hard to understand why cities advocating for more affordable housing options would continue to enforce this outdated regulation.”
Mortgage Stress Test Rate Rises to 4.84%
Mortgage applicants take note – it will now cost slightly more for you to get financing for your new home. The qualifying rate in Canada for mortgages has recently increased 20 basis points, from 4.64 per cent to 4.84. This is as a result of the Bank of Canada rate increase; Canadian consumer lenders use that rate to price their own Prime cost of borrowing as well as their posted rates. The qualifying rate is based on the average of the five big banks’ posted five-year fixed mortgage rates.
This will immediately impact anyone looking to buy a home with less than a 20 per cent down payment. Those high-ratio borrowers are required to qualify for a mortgage at the new qualifying rate, despite the actual contract rate of valuable fixed and variable mortgage rates being much lower.
It’s more important than ever for buyers to connect with a mortgage broker, and receive a pre-approval before kicking off the house hunt – a must in a rising rate environment.
Related Read: How to Save for a DownPayment Under New Mortgage Rules