Experts say Ontario’s decision to raise its tax on foreign home buyers will do little to cool the province’s hot market.
© Richard Buchan/The Canadian Press
The Ford government wants to speed up housing construction to calm the real estate market in Ontario.
Raise the tax on the purchase of real estate by non-residents from 15% to 20% and apply it beyond the greater Golden Horseshoe is the centerpiece of the More Homes for All Act of 2022, which the province announced on Tuesday.
But don’t expect the tax, which comes into effect on Wednesday, to drive down house prices or quell the bidding wars that have become the norm in the market, according to Michelle Gilbert, a broker at Sage Real Estate Ltd in Toronto.
Everyone in the industry, myself included, is well aware that this won’t actually affect the market.“, she says.
Ms. Gilbert adds that Statistics Canada data showed that non-residents owned just 3.4% of all residential properties in the Greater Toronto Area in 2017. This statistic illustrates that the measure affects a small slice of buyers, she says. .
Real estate in Ontario remains a safe market” for foreigners
Foreign buyers may have initially been deterred from buying properties in the area when the tax was first introduced in 2017, but their attitudes have since changed, she points out.
Foreign investors have quickly realized that even with a drop, our market is still a safe haven for their money and they already view this tax simply as the cost of doing business.»
So adding that extra 5%, I don’t anticipate it will affect the number of foreign buyers investing in, say, the GTA.»
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While BMO Capital Markets Chief Economist Douglas Porter says he will keep an open mind regarding the impacts of the tax hike, he is not yet not convinced it will have a big effect».
He believes non-resident investors were a big source of pressure in the Toronto and Vancouver markets in 2016 and 2017, around the time foreign buyer taxes were introduced in both provinces.
According to him, policy makers had then hugely undervaluedhow these investors were fueling an already strained market.
Buyers quite aggressive»
However, he believes that intense inflationary pressure dominates the current Ontario market, which has also driven up prices in rural and suburban markets over the past two years.
But he doesn’t minimize the impact these buyers can have.
Many point to the supposedly small market share these investors hold, but even a small increase in demand can have an outsized effect, as there is no selling on the other side.“, he analyzes.
The two specialists say the province might implement numerous measures to cool the market, particularly in the Greater Toronto Area where the average selling price of a home exceeded $1.3 million in February 2022, compared to just over $1 million a year ago.
Supply is often touted as the most effective instrument for calming markets, but Porter warns it is a slow beast» who will take years, not monthsto influence the market.
The only thing that is very simple and can be implemented relatively quickly is higher interest rates“, he says.
Unfortunately, this has massive repercussions on all sorts of other areas of the economy.»
The province might also introduce a broader speculation tax, but Porter thinks it’s a pretty harsh remedy and it doesn’t seem like [le gouvernement] wants to take this path».