Tara Deschamps, The Canadian Press
Moving the non−resident speculation tax to 20 per cent from 15 per cent and applying it beyond the Greater Golden Horseshoe is the centrepiece of the More Homes for Everyone Act, which the province announced Wednesday.
The changes to the tax targeting non−resident homebuyers were coupled with the closure of a loophole that gave rebates to foreign students completing full−time studies for at least two years after a home purchase and foreign nationals who continuously worked full−time in Ontario for a year after buying.
The bill will also commit the province to work with municipalities on addressing speculation, dedicate $19 million over three years to reducing backlogs at the Ontario Land Tribunal and Landlord and Tenant Board and accelerate planning processes for cities.
But don’t expect the cornerstone — the increased non−resident speculation tax that came into effect Wednesday — to send housing prices plummeting or quell the bidding wars that have become the norm in the market, experts say.
“Everyone in the industry, myself included, are well aware that this isn’t actually going to affect the market,” said Michelle Gilbert, a Toronto broker with Sage Real Estate Ltd.
Gilbert says Statistics Canada data showed non−residents owned only about 3.4 per cent 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 region when the tax was initially implemented in 2017, but their attitudes have since shifted, she said.
“Foreign investors quickly realized even with a dip our market is still a safe haven for their money and they already look at that tax as just the cost of doing business,” she said.
“So adding this additional five per cent, I don’t foresee it affecting the amount of foreign buyers that do invest in let’s say the Greater Toronto Area.”
While BMO Capital Markets chief economist Douglas Porter said he’ll keep an open mind on the impacts of the tax hike, right now he’s “not convinced it’s going to have a big effect.”
He believes non−resident investors were a big source of the heat Toronto and Vancouver’s market saw in 2016 and 2017, around the time foreign buyer taxes were implemented in both provinces.
Policy−makers had a “tremendous under−appreciation” for how these investors’ were fuelling heated conditions, he said.
However, he believes the dominant force in Ontario’s current market is intense inflationary pressures, which also pushed up prices in rural and suburban markets over the last two years.
But he’s not downplaying the impact these buyers can have.
“Many point to the supposedly low share of the market that such investors hold, but even a small increase in demand can have an outsized effect because there’s no selling on the other side,” he said.
“These are just pure new buyers and they tend to be pretty aggressive in terms of what they’ll pay, and from what I’ve seen, they do tend to drive up the price in neighbourhoods and markets that they care to invest in.”
Porter and Gilbert say there are many measures the province could implement to cool the market, especially the GTA, where the average selling price for a home surpassed $1.3 million in February, up from just above $1 million last February.
Supply is often heralded as the most instrumental measure in taking the heat of markets, but Porter warns it’s a “slow moving beast” that will take “years, not months” to weigh on the market.
“The only thing that’s very straightforward and can be implemented relatively quickly is higher interest rates,” he said. “Unfortunately, it has massive spillover implications for all kinds of other areas of the economy.”
The province could also implement a broader speculation tax, but Porter said, “that’s pretty harsh medicine and it doesn’t seem like they want to go down that route.”
feature image via The Canadian Press