When the foreign investor tax was introduced, it was expected to impact real estate prices by reducing demand. And it did, but only in the low rise real estate segment.
High rise properties were expected to be influenced as well, but they weren’t. Or weren’t as much.
How so? Let us explain.
It’s actually quite simple and really was to be expected. Let’s examine a few charts that demonstrate the market mechanics behind this interesting phenomenon.
1. Construction In The Greater Toronto Area (and Across Ontario) Is At An All Time High.
What this chart shows is an overall tendency of construction activity in Ontario to be on the rise. The second quarter of this year exhibits more ongoing construction projects than in any given time in Ontario’s history. In its own turn, this rise in supply dropped the prices somewhat but only to attract more local buyers who were otherwise outpriced, so the demand caught up and is still high.
2. Toronto Luxury High Rise Rentals Among the Fastest Growing in the World
Ok, let’s interpret this one. Taking luxury rentals in 17 upscale markets during the first quarter shows that Toronto is growing fast. It’s a natural incline resulting from the city’s growing population. Simply put, people are looking for rent, and their numbers are also rising.
2. Subway Station Proximity Influencing Prices
Looking at this map generated by the Red Pin online resource, we see Toronto condo price averages within a 2km radius from Toronto subway stations. The prices vary a great deal by area, but often the difference in distance is more or less negligible. Living near a subway station in Scarborough puts you some 20 minutes away from the more expensive areas of downtown Toronto. Those “remote” locations are still in very much high demand.
4. Toronto’s Condo Market is More Resilient than Expected
While foreign investors may have been discouraged, it seems like local demand is still sufficient to keep prices high. The Fair Housing Plan did impact low rises, but condo demand is still very much there. In fact, it’s likely to have created this shift, or contributed to it. The foreign investor tax hits the expensive property the most, which may drive a foreign investor who is still inclined to buy, towards the more affordable condo segment.
5. The Gap Between Condo And House Prices
As we just mentioned above, the average asking price of condos and low rise dwellings of comparable size is very, very different. The low rise prices have skyrocketed in comparison to those of condos since 2012, and the effects of this change are still noticeable in the current condo market, explaining its high demand.
The bottom line is that while the foreign buyer tax has contributed to cooling the market down somewhat, its effect is not the same in all segments of the Toronto real estate world.
We will be watching and reporting on further developments to our readers, so stay with us for future publications.