On April 21, 2017, the provincial government announced it was implementing a 15% Foreign Buyers Tax as part of its “Fair Housing Plan”. The federal government also allotted $39.9 million for a 5-year Stats Canada project. This project would develop a new system to track the housing market, including foreign ownership levels on non-residents ownership of housing stock rather than their recent purchases, or flow. From April to November, in the Greater Golden Horseshoe the “Foreign Buyers Tax” collected $132.6 million in revenues on 1,080 purchases (avg. of $122,777 per transaction).
The projects findings support the theory from many real estate industry leaders that foreign buyers play a small role in the housing market and that the real challenge is a lack of supply. The provincial government defines foreign buyers as those who are not citizens or permanent residents of Canada. While StatsCan defines a foreign buyer more broadly. It considers them as both non-citizens who live abroad, as well as Canadians whose principal dwellings are outside the country.
Using estimates from land registries, tax records and other sources, the report shows non-residents owned 4.9% of properties in Toronto, whereas in the Greater Golden Horseshoe it was 3.4%. Between Mid-August and Mid-November in Toronto, 3.8% of all homes sold were to buyers who were not citizens or permanent residents. This was down from 5.6% for the previous 3-month period. In York Region, the government’s figures show a decline in home sales from non-residents from 6.9% to 3.9%. Although the report reviews purchases made by foreign buyers it has failed to look at purchases made by proxy ownership, which is when properties are registered in local residents’ names but purchased with relatives’ foreign capital. Adding this detail could change the overall outlook of the report.
During the peak of the market in Spring 2017, it was believed that foreign buyers were driving up the price of real estate. The report revealed that the average assessed value of detached homes owned by non-residents was $944,000, about $100,000 more than Canadians. Non-resident owned condos were 8.7% more expensive on average than those owned by Canadians.
Foreign investment may be down in 2018 because some buyers are finding ways to avoid paying the tax, such as by registering properties in the names of relatives who are Canadian citizens or permanent residents. When the “Foreign Buyers Tax” was introduced it had a psychological effect on the marketplace. It caused fear amongst foreign buyers because of the unknown. Foreign buyers wanted to see what kind of an effect this type of government intervention would have on the market.
Foreign buyers will continue to be active in 2018, as the new lower benchmarks established when the market shifted, has allowed them to better absorb the new foreign buyers tax. Canada has become a safe haven for foreign buyers because of its political and economic stability. In York Region, communities such as Markham, Unionville, Stouffville and Richmond Hill will remain a popular destination for foreign buyers because of their diverse culture, provincially ranked schools and proximity to all amenities.