Is the foreign buyer’s tax a solution to sky-high Canadian real estate prices? Or is it a tepid panacea that will offer very little relief for young families and first-time homebuyers? It depends on who you ask.
Due to the meteoric ascent of the nation’s housing sector over the last 18 months, there have been renewed calls for the federal government to adopt a foreign buyers tax. Vancouver introduced a 15 per cent levy a few years ago, while Toronto imposed a 15-per-cent penalty on non-resident homebuyers. At the federal level, there have been different policy proposals. Prime Minister Justin Trudeau has presented a one per cent annual tax, while the New Democrats want a one-time 20 per cent levy. The Conservatives are recommending a two-year ban on foreign homebuyers.
A diverse array of policy analysts and industry experts will present the case for each recommendation. But it is clear that policymakers are beginning to come up with solutions, albeit temporary band-aids, to address the housing affordability crisis.
That said, there is a segment of the housing sector that could be significant affected by a foreign buyers tax: Canada’s luxury real estate market.
While foreign real estate investors are still parking their money in detached and semi-detached properties and condominiums, they are also setting sights upon the luxury real estate market in the Great White North. Indeed, the luxury sector has been hot since the start of the coronavirus pandemic. But will a foreign buyer’s levy curtail this incredible growth?
Could a Foreign Buyer’s Tax Cool the Luxury Segment of the Canadian Real Estate Market?
Even as the broader housing industry starts to cool down, the Canadian luxury real estate market – which is typically defined as properties sold for more than $1 million – is booming. Across the Greater Toronto Area (GTA), Vancouver, Montreal and Calgary, multi-million-dollar properties have been a hot commodity, and industry experts assert that this volume is a result of foreign buyers returning to Canadian real estate markets.
Justin Cohen, vice-president and broker with RE/MAX Realtron Barry Cohen Homes Inc., which specializes in luxury real estate, suggests: “There were a ton of foreign buyers before COVID hit, from October  to March 2020. Then it all stopped, but now they are starting to call, starting to come. Most enquiries are coming from Hong Kong and mainland China.”
Interestingly, the Toronto Regional Real Estate Board (TRREB) discovered a 19-per-cent decline in sales of units worth more than $2 million in the GTA, totalling 794 properties. Nevertheless, despite Ottawa potentially moving ahead with a foreign buyer’s tax, housing experts are confident that the luxury real estate market across the GTA will likely remain strong heading into 2022.
Many real estate agents anticipate renewed growth in luxury markets as Canada reopens its borders and accepts hundreds of thousands of new immigrants. Plus, interest rates are expected to remain low for about another year. So, ultimately, there is a situation of new demand, low borrowing costs and limited inventory.
might a foreign buyer’s tax improve market conditions? History has shown that it could curb the number of foreign purchases. In 2019, CBC News reported that non-residents bought 1,788 homes in the GTA, down from the previous year. This is important because the provincial government instituted a 15-per-cent tax on foreign acquisitions of residential real estate. Overall, foreign buyers accounted for only 1.8 per cent of total home purchases in the GTA since the levy was first introduced in April 2017.
Despite this data on the impact of levies, experts contend that this proposal will not cool the overheated market. The main problem for market analysts is that foreign buyers influence the market by a rather small percentage. Between October 2015 and October 2016, foreign homebuyers represented less than five per cent of the overall market.
“These actions are essential to Ontario’s economic success,” Toronto Real Estate Board (TREB) President Larry Cerqua wrote in a report in March. “Imposing a tax on foreign buyers will not have the desired effect of cooling the housing market and could create adverse effects on the national, provincial and GTA economies.”
Indeed, according to The Globe And Mail, international buyers are dipping back into the Canadian housing market with a vengeance – with or without a penalty. They have only been waiting for the coronavirus-induced lockdowns to subside; as vaccination rates soar with each passing week, their wait may be over.