Ontario cautious on taxing foreign home buyers

Province and realtors want to guard against negative impacts in markets outside Toronto.

Thestar.com
July 26, 2016
By Tess Kalinowski

Ontario finance minister Charles Sousa says he will cast a close eye on British Columbia’s move to tax foreign homebuyers in a bid to keep housing prices affordable in the scorching Vancouver real estate market.

The B.C. government announced Monday it will begin charging 15 per cent on home transactions involving foreign buyers as it faces mounting concerns about citizens being priced out of the country’s hottest market.

BMO chief economist Douglas Porter has urged the Ontario government to follow B.C.’s lead, given that single detached houses in the Greater Toronto Area have jumped almost 20 per cent year-over-year.

Sousa welcomed B.C.’s move. But Ontario needs to be cautious about how a similar measure in the Toronto area could spill over into the rest of the province.

“We have to be cognizant of the impacts of those decisions,” he told reporters on Tuesday.

That caution is well founded, said Dianne Usher, senior vice-president of the Johnston and Daniel division of Royal LePage.

“Toronto and Vancouver are magnets for foreign acquisition. To pull that away could have an impact across all sectors,” she warned.

“Any tax is going to eliminate some of the real estate activity which is a major, major contribution to the overall economy. What might be good for a major urban environment could have disastrous effects for smaller communities,” she said.

Usher cited Hamilton where real estate is just gaining strength after years of economic struggle. She also noted that an Ontario tax could discourage Americans from investing in cottages around Toronto.

“I would rather see foreign money coming into our country. If Vancouver’s not welcoming it any longer, bring them to other parts of the country, particularly in neighbourhoods that might be suffering some economic challenges, for example the east coast of Canada, or Alberta,” she said.

Foreign investment isn’t a problem in Ontario, said economist Frank Clayton. In fact, those investors often buy units that go into the rental market.

But Ontario needs to do something to reduce the “euphoria” around housing that sees people jumping in just because they fear being priced out of home ownership, said Frank Clayton.

“I wouldn’t be opposed to putting something in temporarily just to slow the whole market down,” said the senior fellow at the Centre for Urban Research and Land Development at Ryerson University.

It’s a “massive” tax that is probably being introduced too late to offer any significant relief to Vancouver homebuyers, said David Fleming of Bosley Real Estate, who doubts Ontario will take a similar measure any time soon.

“If - and it’s a big if - all that foreign demand came to Toronto and our market continued to spiral, you might see it,” he said.

But, he added, “The savviest and the smartest will still find their way around the tax.

“People are going to look for the loophole. It’s not going to take long for foreigners to set up Canadian companies and hold the property in those names or maybe move an 18-year-old child to go to university,” said Fleming.

It’s also naive to assume that any investment driven out of Vancouver by the new tax would necessarily land in Ontario.

Some of it might but, “It could also find a place in New York, Los Angeles, San Francisco, Paris or London,” he said.

The CEO of online mortgage aggregator RateHub, called the B.C. tax a “good policy move,” by a government that is bound to protect affordability for citizens.

It can cool the market without pushing those citizens out.

“Going this drastic on something like down payment (requirements) really has the potential for it to take longer for first-time home buyers to save that down payment and that may not be what we want,” said Alyssa Furtado.

Ontario will have the advantage of being able to see if the tax pushes investment outside Vancouver to secondary B.C. markets like Kelowna and Victoria, she said.

Sousa and his B.C. counterpart Mike de Jong are part of a federal committee looking at ways to improve affordability in Canada’s hottest housing markets.

Ottawa set up the committee about the same time that the Bank of Canada cautioned consumers against the likelihood of housing prices continuing to rise at the recent record levels.

The Superintendent of Financial Institutions, which regulates Canada’s banks, has announced they will have to test how they would handle a 50 per cent cut in Vancouver home prices and a 40 per cent drop in Toronto prices.