Ontario’s move to curb foreign real estate buyers appears to be working, with a drop in the number of deals in the months after the province introduced a tax on non-residents.
Slightly more than 3 per cent of real estate activity in Toronto and the Golden Horseshoe from May to August involved foreign buyers, new government statistics released Thursday show, down from 4.7 per cent the month after the tax was introduced.
“We put in those measures, and it shows that they’ve been reduced, and it also shows that the market stability is there,” Ontario Finance Minister Charles Sousa told reporters at Queen’s Park.
The overall Toronto Region housing market has cooled significantly since the non-resident speculation tax was introduced, though experts agree that has more to do with the psychological impact of other new provincial policies — including expanded rent controls and land for affordable housing. On its own, the tax does nothing to make homes more affordable.
From May 27 to Aug. 18, “approximately 3.2 per cent of 66,434 real estate transactions in the (Greater Golden Horseshoe) involved at least one foreign entity,” says the government report. “Out of the 35,264 transactions outside of the GGH, approximately 1.6 per cent involved at least one foreign entity. Overall, out of the 101,698 transactions in Ontario, approximately 2.6 per cent involved at least one foreign entity.”Foreign buyer rates are higher in York Region, which topped the list of Ontario municipalities at 6.9 per cent of transactions from May to August, followed by the city of Toronto, where the rate was 5.6 per cent.
In the month immediately after the new tax was introduced, some 4.7 per cent of those who purchased homes and condos in a wide swath stretching from Niagara through to Toronto, east to Peterborough and north to Barrie, were non-residents.
However, that includes a number of previously negotiated deals that would have been grandfathered in and were unaffected by the new tax.There is no provincial data on the number of foreign buyers before the levy was introduced. While the Toronto Real Estate Board released its figure of 5 per cent of foreign investment into the regional market early this year, there was widespread skepticism among some who believed the level of overseas investment was much higher. But subsequent research, including some done by the Ontario government, has shown similar findings.
Given that foreign students and those applying for landed immigrant status are exempt from the new tax, the levy only affects about 1.5 per cent of all real estate transactions, said Brad Henderson, CEO of Sotheby’s International Realty Canada.
“It’s a fairly small piece, but politically it is large,” he said. That’s because in global cities such as Toronto, where prices continue to escalate, people are looking for someone to blame. Foreign buyers have no voice and no vote.
“They can be taxed with impunity,” said Henderson.
York Region, where foreign investment was the highest in the province, has been particularly hard hit in the market slowdown since Ontario introduced its cooling measures last April.
But because the government measures hit only investment buyers who have their choice of cities around the globe, the new tax “is doing nothing to contribute to affordable housing” here, Henderson added.
The tax can’t be blamed entirely for the slowdown in the Toronto region housing market, which is still digesting the Liberal government’s 16-point Fair Housing Plan as well as tighter federal lending rules and two central bank rate hikes this summer, with speculation interest rates will continue to climb, said Henderson.
“Any of these individual pieces can have an effect on the market,” he said. “What we worry about is the confluence of factors. They’re all intended to cool down the market. It could overshoot the target.”
The 15 per cent foreign-buyers tax is levied on businesses and buyers who aren’t citizens or permanent residents of Canada, and is similar to one in British Columbia that’s been in place for more than a year.
But Henderson thinks Ontario will follow Vancouver, which had to implement some of the exemptions Ontario built into its tax because the Vancouver tax was actually driving away buyers that the city wanted. A year after its new tax was introduced, Vancouver sales were up 22.3 per cent.
A solid economy with strong GDP growth and high employment means both the Vancouver and Toronto housing markets will prevail, Henderson said.
The Ontario Real Estate Association (OREA) praised the government for collecting data on foreign transactions but it urged Queen’s Park to address the supply side of the housing market.
“There is too much red tape on housing development that drives up the cost of new homes and limits inventory in the marketplace. Infrastructure investments should be targeted at housing ready land and we should allow greater intensification along rail and transportation corridors,” the association said in a release.
OREA also noted that foreign buyers represent a sliver of the property market and that the province should develop a target given that it frequently encourages off-shore investment.
The government report also notes that outside of the Greater Golden Horseshoe, in the month after the tax was implemented — from April 24 to May 26 — 1.5 per cent of transactions involved foreign buyers, rising slightly from May to August.
While housing sales in Toronto area remain up year-over year, they have nevertheless declined month-to-month since the province’s new policies were ushered in.
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