Canada’s getting serious about housing supply… or at least trying to make you think it is. The Government of Canada (GoC) made its economic statement yesterday, including a plan to tax non-resident homeownership. The tax, which may be rolled out within the next year, sounds aggressive. However, two of the country’s most populated regions already have non-resident taxes. A few markets may see a temporary hit, but the tax likely just puts domestic speculators on higher ground.
Taxing Foreign Buyers At The National Level
The economic statement includes implementing a tax on non-resident speculative use of real estate. The tax in theory hits foreign buyers looking to squat on real estate with a penalty to discourage speculation. The speech made it seem like it was being considered, but isn’t a done deal. However, the actual statement from the GoC made it seem like a more concrete plan. In fact, the statement reads they “… will take steps over the coming year to implement a national, tax-based measure” to target residential real estate bought by non-resident, non-Canadians.
New Condo Apartments To See The Biggest Impact
Non-resident taxes deter buying of all segments, but condo apartments are the target. Existing homes don’t have the overseas marketing pitch new developments do. New developments are consistently sold in other countries as investments, not lifestyle purchases. This has resulted in a concentration of new housing supply bought as an investment or a store of wealth. It’s like Bitcoin, but more anonymous (since there’s no legal trail of beneficial ownership).
How Does This Impact Toronto and Vancouver?
The impact on Canada’s most expensive markets would technically be minimal. They already have a foreign buyer tax. In BC, non-resident buyers are hit with a 20% tax on the fair market value of real estate bought. The tax applies to Metro Vancouver, Fraser Valley, Okanagan, Nanaimo, and Capital Regional District. In other words, buyers in the population dense parts of Southern BC are already deterred.
Ontario also has the similar non-resident speculation tax (NRST) for Greater Toronto. Non-permanent residents, foreign citizens, foreign companies, or taxable trusts are hit with the 15% NRST upon acquisition of real estate. The tax applies to the Greater Golden Horseshoe Region (GGH), which is basically Toronto and all of its interrelated economies in Southern Ontario. One big difference between this tax and the one in BC, is BC’s tax also has a recurring component. Ontario does not.
Over 1 In 10 New Toronto and Vancouver Condos Owned By Foreign Buyers
Non-resident buying in Toronto and Vancouver highlights how new housing stock has been used for speculation. In Toronto, it’s estimated that 2.6% of housing stock was owned by non-resident homeowners in 2019. That’s already high, but most of it is concentrated in condos built between 2016 and 2019. Non-resident ownerships in this segment represented 7.7% of the newly built condo supply. All of those towers that have been shooting up? Almost 1 in 10 units have been going to non-resident owners.
Toronto Non-Resident Condo Ownership By Period of Construction
The percent of Toronto condo apartments with non-resident ownership, by period of condo construction. Source: Stat Can, Better Dwelling.Greater Vancouver has an even bigger market of non-resident owners, despite recurring taxes. About 4.3% of total housing stock in the region was owned by non-resident buyers in 2019. Breaking down condo apartments built between 2016 to 2019, it jumps to 13.6% for the segment. That’s just over 1 in 7 units that went to non-resident buyers. Note, despite the taxes – the rate of non-resident ownership is still increasing.
Vancouver Non-Resident Condo Ownership By Period of Construction
The percent of Vancouver condo apartments with non-resident ownership, by period of condo construction. Source: Stat Can, Better Dwelling.Montreal and Halifax Likely To See Biggest Impact
Two markets that have been leading price growth lately might be the most impacted by a new tax. Excluding regions already subject to a foreign buyer tax, Montreal and Halifax had relatively high rates of foreign ownership at last study. The CMHC estimates 1.4% of Montreal’s condo apartment stock was non-resident owned in 2018. Halifax saw 1.1% of its condo supply in 2018 owned by non-residents. This would make Montreal the third largest non-resident market in Canada, and Halifax the fifth.
Canadian Non-Resident Condo Ownership Rate
The percent of total condo apartment supply owned by non-residents.. Source: Stat Can, Better Dwelling.A national foreign buyer tax likely makes little difference in BC and Ontario. Both of the provinces have non-resident taxes to discourage speculation. Markets like Montreal and Halifax are likely to see at least a short-term impact. However, the tax is just one tool, and has little impact when paired with policies designed to inflate home prices.
When paired with cheap money and other demand inducement schemes to push prices higher, the tax is just optics. There’s more than enough domestic speculators to fill the gap, with enough incentive. The measure provides the perception of doing something, but accomplishing very little. The opportunity is still wide open for domestic speculators, who now have a tactical advantage.
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Is this a tax on buying, or on holding the RE?
It sounds like a tax on buying, but the full details aren’t known. It could be like Toronto’s, which had little impact and people forgot about it, or it could be like BC’s.
Without a vacancy tax component, 20% is just the cost of doing business.
Let’s hope it’s a tax on both buying and holding.
After reading a bit I thought it was a tax on holding it yearly if the asset was non-productive. So foreigners may still buy and own real estate but MUST rent it out.
Halifax has been insane with the towers for such a small town. Everyone is talking about it being the next Toronto, which is just funny as hell considering it’s just a university and government jobs.
Toronto’s just a university and bunch of Starbucks’, so that might work.
Vancouver is a lifestyle premium to be in the nicest place in Canada.
You think you’re joking, but Starbucks closing is news in Toronto.
https://www.blogto.com/eat_drink/2020/11/another-downtown-toronto-starbucks-closed/
If they charge high tax on foreigners who already own homes in tight cities like Toronto and Vancouver that should release some supply. It should help if they charge say 5-10% estimated home value per year.
To deal with home grown speculators, we need a tax on people who own multiple residential properties. For example we can start with people who own more than 2 properties.
Forcing domestic speculators to sell is better because they will be forced to transfer this money into the economy i stead of sitting in real estate and making everyone life harder.
if you are not including permanent residents this is useless.
What about straw men? While some abroad people are “mom and pop shop”, no doubt some are full-time speculators that would not shy away from buying real-estate through people already resident in Canada and give them a cut. If you can make 200 Grand, you just give the straw guy a cut.
Is this just a paper tiger?
What about tightening money laundering rules?
First,
The govt cannot “force” people to sell.
Second,
The tax needs to go to housing solutions for those in need or it doesn’t address any real issues.
Third,
The cost of multiple home ownership is already baked into our taxes. The govt just has to do their job and make sure those taxes are collected.
First, you are wrong
Second, collecting foreign home owner tax is the right move. On top of that we need to charge extra tax on people who own multiple residential properties.
100% agree. Residential real estate should not be used for investor hoarding. 2 properties max ownership and anything after that should be taxed heavily to discourage this practice.
All these numbers are wrong.
They all buy RE using Canadian corporations opened just for this reason.
Well corporate need 50% down payment and the rent they collect is also taxed at high rate. But you are right we need to tax non developer corps who holds more than 2 residential properties. Apartments building operators can get a break.
This author says the new regs are useless, but concludes that domestic buyers have the advantage. Hmmm? This indicates the regs are not useless.
“ The measure provides the perception of doing something, but accomplishing very little. The opportunity is still wide open for domestic speculators, who now have a tactical advantage.”
The author says it’s useless because he’s referencing increased liquidity provided to buyers, that inflated asset values while locking one type of speculator out. They basically implemented a small measure, while giving another segment enough to more than make up for any impact.
There should also be an extra sales tax on foreign owned property if no foreign buyers tax was paid when the property was purchased.
Tax them for owning it too; 1% per year. We have a national debt to pay. By the way, who the hell in government made it ok for foreign buyers to speculate in our residential housing market to begin with? This is the dumbest globalist garbage to ever exist. Canada needs to look after Canada first and that starts with ensuring we have affordable housing, jobs, common sense regulations to prevent speculation, and tax policies that won’t cripple it’s citizens and residents.