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Ontario, Canada brings in foreign housing tax to cool market

Ontario, Canada brings in foreign housing tax to cool market”

While cash-strapped tenants and home-seekers are fundamentally in favour of these new measures, the question remains, what will it all mean for Ontario's purpose-build rental industry? "Right now, and, over the last few years, the average has been 1,500", said Jan De Silva of the Board of Trade. To offset that, the government has also introduced a five-year, $125-million program to rebate a portion of development charges on new purpose-built rental properties in areas with low vacancy rates. New rules would see all private rental units fall under annual rent increase guidelines.

It's a bit too soon to judge the full impact of Vancouver's foreign buyer tax, said Porter, but historical precedent suggests these sorts of measures can't completely cool real estate markets on their own, Porter told Global News.

"It's not clear that the issues targeted by the policies announced are fully understood at this point, nor is it clear how effective these policies will be or if they will have unintended outcomes", said a statement by TREB, which represents 45,000 realtors in the Toronto region.

Home buyers and renters may benefit from these policies 5-10 years from, assuming the measures taken to improve supply actually result in an increase in the supply of housing.

But that number has been the subject of widespread skepticism. Like in the US, alternative lenders have offered financing on more aggressive terms, allowing buyers who might not have qualified otherwise to purchase expensive properties. It would match the 15 percent tax on foreign home buyers that the Pacific coast city of Vancouver has implemented. Known as "assignment" in the real estate industry, many purchasers now enter into contractual agreements to buy property, then offload their interest in property/units to another buyer before the start of the occupancy period or the official closing/registration of the building.

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The tax was not aimed at new Canadians or those looking to settle in Toronto, she stressed.

"The market was not as hot as it is now, but first-time homebuyers were still feeling a real challenge and so had I had a crystal ball, would we have done all of it at once?" she said.

"While the market typically appreciates growth, in this case we believe an exception will be made, as investors have become more concerned about the risks associated with "excessive" mortgage growth", he said in a note to clients, indicating one such risk is "fallout if the housing bubble bursts". He also said the Canada Revenue Agency will put resources toward ensuring tax compliance, but shut down a previous request from his Ontario counterpart to change the taxation of capital gains on the sale of homes that are not classified as a primary residence.

"Everyone is anxious: what if this is the measure that crashes the market?" said John Andrew, director of Queen's University Real Estate Roundtable.

Another housing measure would expand rent control, which now only applies only to units built before November 1991.

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The Federation of Rental Providers of Ontario (FRPO) has been vocally opposed to the removal of the 1991 Exemption since talks of this possibility abounded several months ago. "We're certainly, in our organization, not seeing a lot of evidence of that".

Ontario is also moving to collect more information on the housing market.

A better measure would have been to cap rents at inflation plus one or two per cent, said Tal.

A 15-per-cent tax will be applied to the purchase of a residential property in the Greater Golden Horseshoe area, in addition to the general land transfer tax. Although Toronto has already aligned those rates, it could help encourage rental construction in 905-area communities outside the city.

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