On April 20, 2017, the Ministry Of Finance announced amendments to Ontario’s Fair Housing Plan, a comprehensive package of measures set to increase supply, impede demand, and protect buyers and renters. It’s a 16-point plan, but the main measures include a 15% foreign buyers’ tax, capped rent, a ban on “flipping” pre-construction properties, and a deeper review of the real estate practice of multiple representation. Read below for how this could impact our market immediately.
The new tax will levy a 15% Non-Resident Speculation Tax (NRST) onto the purchase price of all homes within the Golden Horseshoe purchased by foreign speculators. The tax is specifically targeted at international buyers who are looking to park their money in our market. Thankfully, anyone with a student visa or a work visa is except the levy. The tax is not retroactive (like Vancouver’s was), and will only apply to sales complete after this announcement.
In Ontario, most experts agree that foreign buyers represent a very small cohort of buyers in this market. The last statistics provided by TREB was around 5% of all purchases were by foreign buyers. Of those, the amount purchasing real estate purely for investment (the foreigners who will be taxed) are only a portion of that 5%.
While statistics from Vancouver indicate a 9% drop in prices, that is not an accurate reflection of the lower and middle-end real estate. Sotheby’s has asserted that the statistics are skewed by some buyers holding off on purchasing large and expensive aspirational homes, making the mean and average sale price in Vancouver reflect a lower number than reality. Anyways, prices in Vancouver have stabilized, and in March 2017 they increased by 1.2%.
Ontario is a different type of real estate market, and our foreign buyer’s tax is also different. Our tax is aimed at a smaller portion of buyers compared to Vancouver. We have also had weeks and months of anticipation of such tax, so the shock factor involved with it is minimal. We anticipate that if there is a drop in prices, it will be purely out of speculation, and that the underlying factors to our market appreciation will still prevail.
Below are the additional changes to our market.
- All private rentals in Ontario are now subject to the same rules governing rentals built pre-1991. That includes a maximum annual rent increase and stricter rules around eviction.
- They also plan to implement a universal rental contract, so landlords will stop adding illegal clauses to their contracts.
Actions to increase supply
- The government plans to establish a program to leverage surplus land for affordable housing.
- Individual municipalities will have the ability to impose a vacant home tax.
- A designated $125,000,000 fund to encourage construction of new rental buildings by rebating development charges.
- Lower taxes on purpose built apartment buildings
- Leverage provincial assets to build a more mixed housing supply.
Actions to cool the market
- A prohibition on flipping (selling before complete) on preconstruction projects. This came under strong scrutiny because it both contributed to tightening of supply, and increased house prices, but also the practitioners were avoiding tax.
Multiple Representation Ethics
Recently, Realtors have been receiving a lot of attention around the act of a Realtor representing both the Buyer and Seller, especially in this market. The government is establishing a housing advisory group that will work to educate consumers, and to review the practices of Realtors.
what does this mean
In 2016, Vancouver imposed a Foreign Buyers’ Tax. After a lot of negative media, and some very upset real estate investors, the market had a dip of 31.5% fewer sales, and prices dropped around 9%. It was only a temporary reprieve, and prices have since stabilized, and in March 2017 their prices rose 1.2%. We previously mentioned, the price drop is skewed by the fact the higher end market slowed more than the lower and middle market. The Greater Toronto area will not have the same slum, because our market is different and the tax we are imposing is also different. Our demand is strong enough that there should be no measurable price drop, but because of consumer speculation, we might see some buyers and sellers holding off to see what happens over the next few weeks.
While we believe a lot more research needs to be done. Only time will tell how the market will react to these changes. The way consumers react to the changes will depict how the market will react, the proportion of international buyers being squeezed out of the market by these changes is very minimal.