TORONTO — Real estate experts say Ontario’s move to raise and extend its foreign buyers’ tax will do little to calm the province’s booming housing market.
Raising the non-resident speculation tax from 15% to 20% and extending it beyond the Greater Golden Horseshoe is the centerpiece of the More Homes for Everyone Act, which the province announced Wednesday.
Changes to the tax targeting non-resident homebuyers were accompanied by the removal of a loophole that granted discounts to foreign students pursuing full-time studies for at least two years after buying a home. and to foreign nationals who continuously worked full-time in Ontario for one year after purchase.
The bill will also commit the province to working with municipalities to combat speculation, provide $19 million over three years to reduce backlogs at the Ontario Lands Tribunal and the Landlord and Tenant Board, and expedite planning processes for cities.
But don’t expect the cornerstone – the non-resident speculation tax hike that took effect on Wednesday – to drive down house prices or quell the bidding wars that have become the norm. on the market, experts say.
“Everyone in the industry, myself included, is well aware that this won’t really affect the market,” said Michelle Gilbert, a Toronto broker at Sage Real Estate Ltd.
Gilbert says Statistics Canada data showed non-residents owned only about 3.4% of all residential properties in Toronto five years ago, so the measure affects a small slice of buyers.
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 said.
“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 as just the cost of doing business,” she said.
“So adding that extra five percent, I don’t anticipate it will affect the number of foreign buyers investing in, say, the GTA.”
While BMO Capital Markets chief economist Douglas Porter said he would keep an open mind about the impacts of the tax hike, at this time he is “not convinced it will have a great effect”.
He believes non-resident investors were a big source of heat in the Toronto and Vancouver markets in 2016 and 2017, around the time foreign buyer taxes were implemented in both provinces.
Policymakers had a “huge underappreciation” of how these investors were fueling difficult conditions, he said.
However, he believes the dominant force in the current Ontario market is intense inflationary pressures, which have 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 because there is no selling on the other side,” he said.
“They’re just pure new buyers and they tend to be quite aggressive in terms of what they’ll pay, and from what I’ve seen they tend to drive up prices in neighborhoods and markets in which they wish to invest.”
Porter and Gilbert say the province could implement numerous measures to cool the market, especially in the GTA, where the average sale price of a home topped $1.3 million in February, from just over of $1 million last February.
The supply is often heralded as the most instrumental measure to take the heat from the markets, but Porter warns it is a “slow beast” that will take “years, not months” to weigh on the market .
“The only thing that is very simple and can be implemented relatively quickly is higher interest rates,” he said. “Unfortunately, this has massive repercussions for all sorts of other areas of the economy.”
The province could also implement a broader speculation tax, but Porter said “it’s pretty tough medicine and it doesn’t look like they want to go that route.”
This report from The Canadian Press was first published on March 30, 2022.
Tara Deschamps, The Canadian Press