Overseas real estate investors in Ontario will soon pay a 15 per cent tax on home purchases upon approval by the Provincial.
Ontario’s Premier, Kathleen Wynne, said, “We’re targeting those who aren’t looking to raise a family. They are only looking for a quick profit or a safe place to park their money. There is a need for interventions right now in order to calm what’s going on.”
What is going on is the dramatic increase in housing costs all over the Greater Toronto Area. The non-resident real estate tax is in direct response to this unsustainable increase.
One of the perceived drivers in this boom is the fact that all of the non-resident investor purchases are pushing up property prices. The Greater Toronto Area has seen a 33 per cent increase in average home prices in the last year, and many of these were due to bidding wars.
Vancouver implemented such a tax almost a year ago due to an influx of Asian investors driving up local prices. This bidding war has kept local residents from being able to even consider purchasing a home.
This has caused great concern for the government, which has tried to keep housing prices reasonable and rents affordable for all citizens. Along with the tax on non-residents, the government is looking to expand the Rent Control Rules. The changes in rent rules will end an exemption allowing unlimited rent increase by property owners in buildings built after 1991.
This change will mean any rent increase will be inflation-based and follow Ontario’s strict guidelines. Any increase outside of the guidelines needs approval from the Landlord Tenant Board.
Other housing reform measures being addressed, alongside the Non-residential Speculation Tax, include a rebate for new construction of rental property to encourage development, a standard lease for all tenants, and a review of the rules for real estate agents. Inquiries will also be made to ensure residential properties and apartment buildings are being charged property tax at similar rates.
Another issue the Government wants to see stopped is pre-construction flipping by speculators. The type of speculation has been referred to as “paper flipping”. Ontario’s Minister of Finance has described paper flipping — or “property scalping” — as a real estate deal where investors buy up new development properties and flip them, while avoiding paying any taxes.
Municipalities may be able to bring in a little extra revenue as well with a measure introducing a vacancy tax. This tax has been implemented in Vancouver and will bring in 1 per cent to the local government due to a citywide vacancy rate of 6.5 per cent.
Ontario’s housing reform plan will also include:
1. Making sure real estate taxes are paid on all sales and purchases with new reporting requirements at the Canada Revenue Agency.
2. Developing extra provincial land for new construction housing and affordable housing rental units.
3. A housing supply team will be created to confer with developers and municipalities to identify housing issues before they become a problem.
4. The government will have its own group of advisers to keep them informed about how the housing market is doing and the effect of housing reform.
5. A push will be made to educate consumers about their rights during real estate transactions.
6. Completely revamp the standards for elevator repair.
7. A municipality growth plan will be created to address supply and demand based on population density.
All these changes are expected to slow the increase in average house prices in the Greater Toronto Area, as a similar tax did in Vancouver last year.
The Non-resident Speculation Tax will allow a rebate for non-resident homebuyers who purchase a home and then become residents within a certain time limit. The tax is not intended to target the influx of immigrants into Toronto who want to start a better life. It is intended to curb a housing market that is fast spiralling out of control.
There are those who argue Toronto’s price problem is due to the area being a sellers’ market, resulting from the houses for sale or those being built are not meeting the demand created by continued growth in population.
— The writer is with Buttonwood Property Management.