The Toronto Real Estate Board is opposed to the Ontario government introducing a foreign buyer tax because it believes that there will be negative effects for Toronto real estate overall, as well as it not really being necessary.In Toronto, there is little evidence to support speculative foreign buying, as houses are not being assigned in the short term for big profits like they are in Vancouver.The assignment market is more common in the pre-construction condo market, but there are restrictions on how that works and how soon it can be done.
For condos, the developer HAS to approve the assignment or it won’t happen.The whole concept of the foreign buyer tax was spawned in response to public backlash at the notion of “shadow flipping” in Vancouver.This activity was exposed in a Globe and Mail article earlier this year and I suggest you read that article as it outlines in more detail what shadow flipping is all about.
In Toronto, we don’t really see this being happening.Most foreign buyers are choosing to rent out the property or have local family living in it as opposed to it just sitting empty.There just isn’t the same rate of increase in Toronto as there is/was in Vancouver to justify holding an expensive home empty for profit.
What SHOULD be done is to tax capital gains at 100% for foreign buyers AND impose an additional tax if a property is re-sold within X period of time to curtail any shadow flipping.Taxing an empty house doesn’t really work, as anyone can throw a few bodies in a home to work around that kind of tax.HST/Landlord Tax Credits should not be granted to foreign buyers.
It is my belief that imposing this new foreign ownership tax akin to Vancouver will have the following results in Toronto: 1.Purchases will be pulled ahead and will cause a spike in prices in the short term and setting new precedents going forward after the tax is implemented.I witnessed this when the Toronto Land Transfer Tax was introduced.
There was a mad rush to beat the deadline and a lot of competition to avoid paying the extra 2%.Imagine what an extra 10–15% will do to prices?Did prices drop after the deadline?
No they didn’t.2.Foreign buyers will find ways to circumvent the tax with local contacts.
The money trail from China to Canada is not the easiest to track back to the origin of funds due to the way that China’s rules allow funds to flow out of China.3.Making Vancouver MORE expensive for the ultra wealthy Chinese just makes it more exclusive and a greater status symbol of wealth, which is one of the drivers of Chinese funds into Vancouver.
If you are RICH, you buy in NYC, California, London or Vancouver.The not-as-rich buy in Toronto and are not as inclined to lose money on an empty home.By making Toronto more expensive, it becomes a greater status symbol of luxury.
4.Taxes do not solve the real problem in Toronto: a lack of inventory for sale.The demand (especially for freehold homes) far outstrips supply.
Many people choose to stay put and renovate because moving up to a nicer/larger home is too costly and difficult based on the competitive environment.Even the Toronto condo market has a supply issue.It is not one of volume of condos, but the quality of them.
I would say that 10% of what exists are considered desirable by the majority of buyers, so condo hunters are holding out for those better units if they can afford it.I think we need to see 6–12 months of data before we can draw any conclusions of the impact of this foreign buyer tax in Vancouver’s real estate market.
There is no predicting.There is less evidence that the big issue in Vancouver – foreign buyers who buy the properties as investments then leave them vacant, is happening to the same extent in Toronto.The reason this is an issues is because it increases the cost of real estate , and reduces the availability of houses to buy and houses to rent.
It is now almost impossible for a working couple with two professional incomes to buy a house in Vancouver.I would think the province will wait and see what happens in Vancouver.If the new tax doesn’t slow down the prices and increase the availability of properties, then they won’t implement it.
We would probably get at least 90 days, and more likely six months notice if they do implement it.What happened in Vancouver is that short term prices soared as people tried to buy before the tax took effect.