Ontario reconsidering a foreign buyers’ tax to cool housing market
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Thread: Ontario reconsidering a foreign buyers’ tax to cool housing market

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    Ontario reconsidering a foreign buyers’ tax to cool housing market

    This was published by The Globe & Mail today. It will be interesting to see if it has any impact, or if it eventually materializes. Likely a move to avoid (delay?) a crash before the elections.


    http://www.theglobeandmail.com/real-...ticle34256991/

    The Ontario government is considering a new tax on foreign home buyers designed to curb rapid growth in Toronto home prices.

    Finance Minister Charles Sousa said on Thursday he is reconsidering the tax as one option to cool the housing market, after rejecting such a measure last fall.

    Mr. Sousa said he was previously inclined to “let market forces prevail,” but is now concerned with “the degree of fast appreciation in the short term and what will that do over the long term.”

    With February data showing detached home prices in the GTA having risen by more than 30 per cent over the last year, a growing number of economists have recently warned that the overheated market risks accelerating beyond the control of policy makers.

    Warren Lovely, head of public sector research and strategy at National Bank Financial, said he has also come around to the idea of a B.C.-style foreign-buyer tax, after having advised against it in discussions with Mr. Sousa last fall.

    Runaway Toronto prices combined with the effectiveness of efforts to cool the Vancouver market require a rethink, Mr. Lovely said in a research note on Thursday.

    “We’re not saying that an incremental property transfer tax levied on foreign buyers is the silver bullet,” Mr. Lovely said. “But its time may have come.”
    (...)


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    Senior Member carverman's Avatar
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    Quote Originally Posted by rebel_ins View Post
    This was published by The Globe & Mail today. It will be interesting to see if it has any impact, or if it eventually materializes. Likely a move to avoid (delay?) a crash before the elections.
    Good source of revenue for the province and maybe they will share with the city so that the toll idea is gone.

    Foreign buyers and real estate agents just drive the prices up so that homes that are worth far less than the million and a half "average" prices become unaffordable for working families.

    Foreign buyers are just looking for investments that are relatively safe in today's economic climate.

    Unlike get rich schemes such as ahem..."cannabis stocks" etc that will rise and crash, real estate always has some intrinisic value, usually driven by what the buying market will bear...
    however the new real estate rules (20% down now) pushes affordabilty out of the reaches of most working Ontario "stiffs" paying taxe up the ying-yang, along with the high cost of food and shelter. Most first time buyers now can no longer scrape together $150k to 300k to put in that 20% down to get a 1.2 million dollar mortgage for 30 years.

    Imagine the mortgage payments never mind the update property appraisal when the property is purchased..its downright crazy now!

    Mortgage payment: $5,400 Interest over fixed 2.42% on 5 year term" $87,056
    Total interest on life of mortgage (25years) $419, 858

    Even if the province goes ahead with an updated LTT (Land transfer tax) on realestate transactions done with foreign buyers...
    say 5% on the final price..that's only $75,000 added to the cost will be recovered when the property gets flipped again 5 to 10 years down the road.

    Now,at one time a family of wage earners assuming both working should spend no more than 30% on shelter of their gross salaries.
    assume here both have $125K salaried positions that monthy total ($10K) minus at least 40% inciome taxes = leaves around $6000 of take home pay for both.

    Add to the mortgage and taxes,
    Car loans, credit cards, other living expenses and one can easily see that even $6000 of net income monthly for TWO wage earners will not suffice anymore.

    If a marriage breakdown occurs,that's it!..nether spouse can afford the house on just $125 of salary.
    The house is resold again and up go the prices!

    Winners: Mortgage companies: (insane interest collected on these high ratio mortgages.
    Real estate companies,
    Ontario gov't land transfer tax
    Muncipal taxes

    Losers: the working stiffs that really need the house and can no longer afford it due to the high cost of living in the city.

    The bubble WILL burst at some point.
    Last edited by carverman; 2017-03-10 at 07:10 AM.

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    As long as demand is there, nothing will cool the housing market. Government is simply trying to cash-in - like everyone else. Investors will continue to invest. Homeowners will continue to look for a home to own.

    The bubble will burst when people start losing their jobs and/or actually start moving elsewhere. Once the demand drops, so will prices. So far, those indicators are not there so we can all stop speculating and panicking.

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    To me, they should let the foreign buyers purchase as much real estate as they want. There is no land shortage in this country.

    The HAM will lose interest at some point, because some other jurisdiction will offer them a better deal for storing their wealth. They will sell, but they can't take the houses and condos with them. That physical wealth will remain, to the benefit of the people who actually live here.

    It is not totally clear that the main driver of the real estate bubble is the HAM. I think it has more to do with ZIRP/NIRP, and the substitution of debt for wealth. I would be in favour of cancelling the HBP, and winding up the CMHC or at least enforcing a 20% minimum down payment.

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    To me, they should let the foreign buyers purchase as much real estate as they want.
    The problem is not foreign buyers per se, but foreign money (i.e. untracked, untaxed, etc.).

    In this paper (PDF), Josh Gordon, a professor in public policy at SFU, makes a case for foreign investment as the main culprit in Vancouver's housing affordability crisis. From the paper:

    48.8 percent of investor stream migrants reported that “real estate and rental” was the nature of their business operations.

    Even more tellingly, only about 10 percent of the migrants in this stream reported any self-employment income. And then the kicker: the average income tax paid annually after 10 years of admission was only $1,400. That compares to the $10,900 paid on average by skilled immigrants in other programs, and $7,500 for Canadians in general. In short, the investor stream migrants have engaged in virtually no economic activity in Canada. This is striking. These are individuals who we would expect to be able to prosper in Canadian society should they wish. Anyone who has a net worth of $1.6 million and can front a government an interest-free five year $800,000 loan is presumably well placed to do well in business or the labor market if they so choose.
    The G&M also published a terrific investigation on this issue last year.

    Foreigners (people who don't live/don't pay income tax here) should not price locals (who live and pay taxes here) out of residential real estate.

    I used to be skeptical about foreign money being the main driver behind the rise in home prices in Vancouver and Toronto, but Pr. Gordon's case especially is pretty convincing. Even if only a small percentage of buyers (e.g. 5%) involve untracked, untaxed foreign money in real estate transactions, that may be enough to trigger rampant speculation, FOMO on the part of first-time homebuyers, etc.
    Last edited by rebel_ins; 2017-03-12 at 11:08 AM. Reason: spelling

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    I would be in favour of cancelling the HBP, and winding up the CMHC or at least enforcing a 20% minimum down payment.
    I would agree with this. The only reason the banks are lending to those who put down less than 20% (many of whom otherwise would not be able to "afford" a home), is because of CMHC insurance. Should the market collapse, taxpayers are on the hook for $500 B (maybe significantly more).

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    The bubble will burst when people start losing their jobs and/or actually start moving elsewhere. Once the demand drops, so will prices. So far, those indicators are not there so we can all stop speculating and panicking.
    People will start moving elsewhere when government start encouraging businesses to move out of Toronto.... The only real industry here is financial services and all banks have their HQ in downtown Toronto...If some banks would move to Waterloo or London areas, we'd be happy to move there too considering that our son in Waterloo University and most likely our daughter will start same University in 2-3 years

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    Bring it on, but the real problem is that foreign buyers are sending family members to Canada who are then claiming primary residence exemption and no income. As such, they pay zero tax while receiving free healthcare and other benefits and sheltering investments from high tax jurisdictions.

    Canada is a heaven for foreign tax cheats who are milking the system while inflating the housing bubble. Foreign buyers tax will do diddly squat to address the problem.

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    Quote Originally Posted by rebel_ins View Post
    I would agree with this. The only reason the banks are lending to those who put down less than 20% (many of whom otherwise would not be able to "afford" a home), is because of CMHC insurance. Should the market collapse, taxpayers are on the hook for $500 B (maybe significantly more).
    Spoken by someone who is obviously not planning on buying or selling a house in the near future.

    The first time homebuyer plans are good tax policy to help young people acquire homes. The government of Ontario needs to understand that there are significant differences between the GTA and the rest of Ontario. I can tell you with complete certainty that in Ottawa, real estate prices in Ottawa are pretty much flat. I can't believe Sudbury or Sault Ste Marie would be much different. I think trashing those markets would present a real risk to the Banks more then what happens with rising prices in Toronto. I have to imagine the banks are just as concerned about Toronto as we are, and are adjusting their lending practices somewhat. I also have to imagine that they may not have considered what would happen if a knee jerk government sends a negative shot towards real estate prices across ALL of Ontario, what that might do to their loan security in the areas outside of the GTA. That would most definitely cause some blood letting by the banks. Maybe they do know about this disparity but the press seem to have missed it and most posters on this board as well.

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    As foreign buyers make up only 5% of the Toronto market, it is difficult to see such a tax making much impact.

    https://www.thestar.com/business/rea...s-in-2016.html


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