Foreign buyer tax impact mostly psychological, says Sousa
The government had to act because families were being squeezed out of the market, said the minister.

TheStar.com
July 5, 2017
Tess Kalinowski

The province's Fair Housing policy, including its 15 per cent foreign speculation tax, has cooled the Toronto area's overheated housing market, but its impact has been largely psychological, Finance Minister Charles Sousa said Wednesday.

"We are tempering not only non-resident Canadians . . . but we're also saying to local speculators you are going to have to disclose everything you're doing to the Canada Revenue Agency,” Sousa said. “That in itself tempered some speculation locally as well.”

Sousa spoke to reporters following the first of four planned provincial housing forums — a day after the Liberal government reported that 4.7 per cent of home sales that closed in the Golden Horseshoe in the month following its April 20 housing announcement involved foreign buyers.

The government had to act because housing prices were pushing families out of the market, he said. "We couldn't just sit back and not provide some degree of safety, especially for those in the lower price points," said Sousa.

It remains unclear which municipalities are experiencing higher than average market speculation and how big a disincentive the new foreign speculation tax presents, but Sousa said the government will track those impacts going forward.

"What we do know is that the spike of property values was tremendous year over year — up to 33 per cent in Toronto alone, higher in the surrounding areas — it is now around 14 per cent since we put those measures in place," he said.

"Market forces will always prevail."

The Bank of Canada's pending decision on whether to raise interest rates will also have an impact on housing demand, he said.

Sousa dismissed concerns that the Ontario economy is too dependent on housing, saying demand is high, but fundamentals are strong with exports growing and low unemployment. "The measures we have taken are designed to provide for stability and sustainability," he said.

The province is using Teranet land registry data on closings, and provincial and municipal land transfer tax information to determine foreign transactions.

Some realtors are skeptical about the real impact of the foreign investment tax given the relatively low level of activity.

"Will (the tax) make a difference in the market? Yes,” said Tom Storey, Royal LePage Signature Realty. “But if we're talking about 4.7 per cent of total foreign buyers — how many of those 4.7 per cent is it going to affect their decision making (on whether to buy)?"

Overseas investors might rethink leaving a property empty given the tax, but for some it will simply be the cost of parking their money, he said.

The province's remarks come a day before the Toronto Real Estate Board (TREB) is set to announce its revised 2017 forecast and June sales figures, which are expected to have declined further since May.

TREB had been predicting 10 to 16 per cent growth in prices this year compared to last, but it released a survey last month showing that many first-time buyers are postponing their purchases.

Data tracking realtor John Pasalis of Realosophy expects sales to be down 36 per cent overall in June with the steepest drop of about 43 per cent in low-rise housing, compared to condos.

He says the average home price will still be up about 6 per cent in June, compared to last year, but down about 13 per cent from April.

TREB reported that seller's market conditions were receding in May as home owners flooded the market with re-sale listings. Still, it said prices had risen 6 per cent year-over-year price. But the average Toronto-area home price dipped in May, compared to April, by about $55,000.

Meantime, city council has voted to pursue another market cooling measure — a tax for vacant homes in Toronto meant to discourage speculation and boost the available supply.

City officials have already said that there could be between 15,000 and 28,000 homes sitting empty, based on hydro and water use records.

On Wednesday, council agreed that staff would report back on Sept. 26 on whether garbage collection, permit and licence applications could also help determine whether apartments and houses are empty.

Toronto is considering a Vancouver-style system of requiring all property owners to declare their home's occupancy status. But it will also consider a "less intrusive" self-reporting of long-term vacancies or a complaint-based system would that would penalize cheats.

Vancouver charges 1 per cent of the assessed value of a home on units that are vacant for six months or longer.

Storey likes the idea of a vacancy tax.

"You don't want empty houses in the city where people are having trouble affording it," he said.

But implementation will be complicated and it's unlikely to do much in terms of protecting the market against the kind of meteoric price rises that Toronto was experiencing until cooling began in April.

Although utilities are sub-metered in condos, you couldn't track garbage collection, for example, he said.

"If there was an estate sale, are they going to be charging that family a tax while they're figuring out what to do with a property?" said Storey.

"It would definitely be a good chunk of money that I'm sure the government would love," he said. "But how's it going to affect the actual market? I think this is a little fish in the big pond of how the market works."

Vancouver, which introduced a foreign buyer tax last summer, saw an 11.5 per cent home sales dip in June compared with a record high set a year ago.

The Real Estate Board of Greater Vancouver said Wednesday 3,893 properties changed hands last month compared with 4,400 residential property sales in June 2016.

Sales in June this year were down 10.8 per cent compared with May, when 4,364 homes were sold.

However, the board says last month's sales were still 14.5 per cent above the 10-year sales average for the month of June.