Impact of Vancouver’s New Tax on the Toronto Real Estate Market

Friday Jan 06th, 2017

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If you follow any sort of Real Estate news you’ve likely already heard of the 15% tax Vancouver has imposed on foreign investors.  In an effort to cool the extremely hot Real Estate market in Vancouver, a new tax has been imposed upon foreign home buyers. As of August 2, 2016 any deals closing, where the purchaser is not a Canadian citizen or landed immigrant a tax of 15% will be added to the transaction. To put it into perspective, on a $2,000,000 purchase, this equates to $300,000 to be paid as a tax.  This tax alone is enough to buy another property all together in a few other Canadian markets.

 

All that being said, we don’t live in Vancouver.  Nor do we buy, sell, or manage property there, so how does this new tax affect us here in Toronto? To answer that questions let’s better understand the impact the announcement has made in the Vancouver market and relate it back to what could likely happen in Toronto.

 

Where will the foreign investors who buy in the Vancouver market move to invest in now? As many have made clear already they will likely not stay in Vancouver (http://business.financialpost.com/personal-finance/mortgages-real-estate/reality-of-b-c-s-foreign-buyers-tax-begins-to-bite-as-realtors-report-deals-collapsing) to swallow the cost of this new tax they will need to invest somewhere. Buyer’s looking for more hands-off investments in major Canadian cities will undoubtedly have the more affordable Toronto on their radar as their next investment city.  

 

So what will this do to the Toronto market?

Prices that are already consistently on the rise are likely to continue to rise at a faster rate given all other factors remain unchanged. As some foreign investors move their money to the more affordable Canadian city, competition will rise further emphasizing the gap between supply and demand. We cannot predict how many foreign investors will look to Toronto as opposed to other coastal cities for example, as many people buy property for different reasons. That being said, we can say for sure there will be a percentage of those investors looking directly at Toronto and that will undoubtedly result in an increase in competition and thus an increase in home prices in Toronto. For those of you with existing investments in Toronto this will help your portfolio look even stronger, however for those looking to buy it is your best interest to do this even sooner given the new rules.

 

Is Toronto going to implement the same tax?

While there is some speculation as to whether or not Toronto will implement the same tax, it does not seem likely given the position of Toronto as compared to Vancouver.  A primary reason for this tax being implemented was household income of Vancouver residents not keeping up with the rising home prices in Vancouver.  While Toronto and Vancouver families earn a similar household income ($75,270 and $76,040 respectively *2014 Statistics Canada) the housing prices of these two cities have been drastically different.  In Vancouver the benchmark price of a detached home in July was $1,578,300.00, this up by a massive 38% from the year before (CREA). Toronto detached homes for the same time period benchmarked $1,280,000.00, up only 16% from the year prior (CREA).  While I’m not saying that 16% is not a very large year over year increase in housing prices, it’s is not nearly as dramatic as the 38% Vancouver residents saw.

 

For those foreign investors who have considered investing in Vancouver, or those with deals currently closing in Vancouver we would highly suggest contacting a very knowledgeable real estate lawyer.  As with any new implementation of this magnitude, investors will likely look for methods to ensure these deals remain favourable. While one could speculate on the any ways that could be done, there are steep penalties for doing things the wrong way and your lawyer should always have a chance to look over any new strategies prior to firming up on a deal. 

 

Phil Gardner

Director - Property Management

My Capital Corner Team

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