Toronto brokers and industry professionals are skeptical that legislation imposing a 15% tax on foreign homebuyers who do not live permanently in Canada will slow soaring price growth.
The foreign buyer tax is the main plank in a slew of 16 measures Ontario lawmakers have introduced to cool the housing market in a slice of the province known as the Golden Horseshoe, stretching from Niagara Falls to Toronto and its suburbs. As an example of the skyrocketing market, the average selling price in the Greater Toronto Area increased 33.2% in March over the previous year, according to figures from the Toronto Real Estate Board.
But the city’s real estate board and some luxury brokerages have come out since the announcement in April to cast doubt that a tax on non-resident, foreign buyers would dampen demand in any meaningful way. Experts argue domestic buyers primarily drive the market, rendering a foreign tax moot, and that the root of the price boom, they say, is a shortage of supply.
“Aside from a possible momentary ‘let’s wait and see’ lull, the residential and recreational markets in Toronto and Ontario should continue much as they were before the announcement of the Ontario Fair Housing Plan,” according to an analysis by Chris Kapches, president and CEO of Chestnut Park Real Estate Limited, a Toronto affiliate of Christie’s International Real Estate.
“If the ultimate goal is to make housing in Ontario affordable, the plan will fail,” Mr. Kapches wrote. “Prices will not come down until there is more supply.”
The proposal follows a similar tax levied to cool the market in Vancouver, where foreign buyers made up at least 10% of residential transactions and where the market was already softening before the tax was announced, according to research from RBC Economics.
By contrast, foreign buyers accounted for less than 5% of purchases between October 2015 and October 2016, according to a survey by the Toronto Real Estate Board.
The survey also found much of that foreign buying was not speculative in nature and would likely qualify for a tax exemption under Ontario’s proposal. For instance, permanent residents and refugees are exempt from the tax, and rebates are available to foreigners who obtain Canadian citizenship within four years of buying the home, students and those who work in Ontario full-time.
Last year’s survey found that some four in five transactions were for primary residences, a home for another family member to live in or a rental investment.
“These actions are essential to Ontario’s economic success,” TREB President Larry Cerqua wrote in March. “Imposing a tax on foreign buyers will not have the desired effect of cooling the housing market and could create adverse effects on the national, provincial and GTA economies.”
Provincial legislators still have to vote on the housing plan for it to become law, so “it’s the will of the House as to when it may pass,” Scott Blodgett, a spokesman for the Ministry of Finance, told Mansion Global. But if and when it does, the foreign buyers’ tax will be retroactive to all transactions initiated on or after April 21.
Nevertheless, the impending tax hasn’t slowed activity at the Sotheby’s International Realty brokerage in Toronto, said Richard Silver, senior vice president.
“We’re still getting lots of multiple offers in our office,” Mr. Silver said. “The tax as it is imposed would effect a very, very small portion of our buyers.”
Developers looking to pre-sell new developments in foreign markets may have a different perspective, but most of Toronto’s resale market is domestic, exempt or eligible for a rebate from the tax, Mr. Silver said, meaning the foreign buyer tax alone will do little to cool the bidding wars that plague the market.
“This is not an enjoyable market that we’re dealing with, it’s a lot of people going out (house hunting) night after night frustrated,” he said. “My concern is when they realize a year from now that it hasn’t done what they wanted it to, what will they do next?”
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