One of the things that got everyone’s attention recently is the new foreign investor tax, better known as the Ontario Fair Housing Plan, and its influence on the Canadian real estate market.
The plan was put in place to favour Canadian homebuyers that were outbid and outweighed by foreign investors. Economists are divided on the topic, and some maintain that the data presented by the government does not fully reflect foreign investment statistics.
There seems to be data that shows foreign buyers were involved in 4.7% of recorded transactions, which doesn’t seem bo be much. But.
One of the things that this report omits is however, is when the data was starting to be collected. It was in fact gathered between April 24th and May 26th.
At the time, the Fair Housing Plan that imposed a 15% land transfer tax on foreign buyers was already implemented. This likely means the rate of foreign investment in the Greater Golden Horseshoe area was even greater, before then.
There is cause to estimate that before the Plan went into effect, foreign investment comprised over 10, and likely up to 15 percent of real estate deals in the region. A previous survey of realtors intended to gauge the numbers behind foreign investors showed a rate of just over 5%, but there are other sources of data that say otherwise.
Judging by what’s known about currency and deposits owned and held by non-Canadians in Canadian banks, we see a far stronger presence.
Also, there is a pretty accurate way to estimate local home sales which result in population growth and are usually in close correlation to it. Once you have the figures of actual sales, you can see how many purchases there are beyond normal demographics. It is reasonable to assume those are, in the most part, foreign investment activity.
So what we really see here is a drop from 10-15 percent to just over 4.5% in the course of less than a month. A similar situation happened in BC, where foreign real estate deals dropped from 5-10 percent to nearly zero, after a similar tax was implemented.
This is not a one-fix-for-all solution of course, because it’s not only (or even not mostly) foreign investment that drives prices up on our real estate markets. There is genuine rise in demand from Canadians. Some cities, especially in the GTA, are experiencing a shortage in supply despite massive construction projects.
The new increase in mortgage interest rates driven by the Central Bank does help, however. I drives speculators away from the market, as they rely heavily on rapid increase in real estate prices from which they produce their profits. Once they are driven out, it gives some elbow space for families who just need a home.
Bottom line is, the situation on the GTA and Toronto real estate market is, while far from perfect, still looking up for new home buyers.
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