It had been talked about for months and now we have learned that the provincial government will be implementing measures to cool off the RED HOT real estate market. The Greater Toronto Area has observed prices, which have risen by 20-30% in comparison to the same time last year.
Here is a list of measures that will be implemented.
- Non-resident Speculation Tax
On Friday April 21, 2017 the province implemented a 15% tax on foreign buyers who are not citizens or permanent residents of Canada when they buy property. This tax will apply to those in the Greater Golden Horseshoe, which spans from the Niagara Region to Peterborough. Approximately 8% of home buyers in the GTA are non-residents.
The Premier suggested that this tax is not aimed at new Canadians. Canadians who become permanent residents within four years of a sale will be reimbursed any taxes paid. International students enrolled full time for two years or someone who has been working in Ontario for at least a year will also be eligible for the reimbursement. To qualify for the rebate, the property purchased must be designated as the owner’s principal residence.
In our experience, when a new tax is introduced, we find that the general response of the public is to sit on the sidelines and do nothing until they have a clear understanding of where the market is going. Essentially, the fear of the unknown will cause some people to do nothing in the short term. This hesitation could lead to higher inventory levels, which could then cause downward pressure on prices. We expect this measure to have little effect on the market in the long term and a marginal easing over the short term.
- Broadening Rent Control
The government is Broadening Rent Control and is set to bring all properties under the province’s existing rent control system. The previous regime only covered buildings built before 1991. Moving forward, all properties will be covered by the new rent control measures. We expect this measure to have very little effect on the marketplace in the short term. Studies show that rent controls restrict supply of available properties and over the medium to long term will exacerbate the existing problem. As supply of available properties diminish, the price of real estate will have upward pressure. We feel that this is a political play to appease those who are renting properties in the GTA because of their increases in rents. Over the medium and long term, renters will be trapped in rental housing because the same rent controls that are keeping rents artificially low will cause a lower supply of rental units and then real estate prices to rise and therefore, renters won’t be able to afford to purchase. This is an extremely high price to pay to win votes.
The provincial government is also introducing a rebate on development charges to developers who build new apartment buildings. This rebate is simply not enough incentive to encourage new rental construction. This measure causes builders to realize how fragile their investments truly are when the government can, with a stroke of a pen, drastically limit their ability to earn a fair return on their investments. The future supply of rental housing will be reduced and the affordable housing supply that our City so badly needs will also decline.
- Vacant Homes Tax
The province will work with municipalities on a vacancy tax for unoccupied housing in the Toronto region to encourage owners to rent unoccupied space. This tax will be placed on top of the home owner’s property taxes.
- New Rules for Landlords
Landlords and tenants will use a new standard lease agreement, which includes tightening provisions that allow landlords to evict tenants when claiming they plan to use an apartment themselves or for family.
- Creation of A Housing-Supply Team and Housing-Advisory Group
An organization of economists, academics and developers will give the government quarterly advice on whether these new measures are working and whether additional steps are needed.
- CRA to Tackle Assignment Purchases
The government will be focusing on investors who put deposits on multiple units at pre-construction prices, typically in condominiums but sometimes in new subdivisions, then sell the title at an increased price before the building/site is complete. This process is known as “Assignment”.
- Development Charge Rebate
A $125-million, five-year program to rebate a portion of development charges aims to spur the construction of new apartment buildings. Currently developments charges for new apartments can run up to $24, 638.
- Tax Fairness for New Apartment Buildings
Toronto apartment building owners currently pay 2.7 times more than what a taxpayer with a comparable single-family home pays. Moving forward, property taxes for new multi-residential apartment buildings will be charged at a “similar rate” as other residential properties to encourage builders to construct more rental housing.
- Educating the Consumer
The province is committed to informing the consumer about their rights, in particular, in the area of a real estate agents representing more than one party in a transaction.
The government has also stated that they will begin tracking citizenship and residency. Anyone who buys real estate in Ontario will have to reveal their citizenship and place of residence. Buyers will also be required to state whether the property is to be used as a primary residence or investment, whether the buyer is acting as a representative for the eventual owner, and to reveal the names behind any numbered company purchasing real estate. All of this will take effect on Monday, April 24, 2017
What does this all mean?
When the Foreign Buyer’s Tax was first introduced in Vancouver to slow down the red hot real estate market there, their market dipped slightly. After 6-9 months, the market stabilized and now the Vancouver market is on the rise. What we expect to witness here in the GTA, in the very short term, is an increase in inventory and downward pressure on prices. We expect this to be a very short blip and for prices to come roaring back after a short while. Ultimately, if you are a buyer and waiting for prices to drop so you can get a good buy on a home, you better act quick. There might be an opportunity in the short term, however, within 6-9 months, prices will have bounced back.
Official budget to be released on April 27, 2017