Real estate groups urge Ontario not to impose tax on foreign buyers

BRENT JANG AND TAMSIN MCMAHON

VANCOUVER and TORONTO — The Globe and Mail

Published Friday, Sep. 23, 2016

The heads of two prominent real estate associations in Ontario are lobbying government leaders not to follow B.C.’s lead with a tax on foreign home buyers, a move that comes as the spotlight shifts from Vancouver to Toronto’s hot housing market.

In letters sent to Ontario Finance Minister Charles Sousa and Toronto Mayor John Tory, the presidents of the Toronto Real Estate Board and the Ontario Real Estate Association warned that matching British Columbia’s 15-per-cent tax in Metro Vancouver for buyers who are not Canadian citizens or permanent residents would harm the economy.

“Increasing taxes on foreign home buyers is a knee-jerk reaction to a problem which we do not fully understand, will do little to address the growing affordability challenges facing many Ontarians and may have negative consequences for our broader economy,” Larry Cerqua of the TREB and Ray Ferris of the OREA wrote in their letter to Mr. Sousa.

The warning comes as the Vancouver housing market shows signs of cooling and several industry observers weigh in.

Former federal finance minister Joe Oliver has come out in support of taxing foreign buyers in the Toronto region, and Toronto city councillor Jim Karygiannis has said he would draft a motion in support if his constituents favour a tax. Critics say the province has little choice but to copy British Columbia’s tax, which took effect on Aug. 2, or risk adding fuel to Toronto’s overheated market.

Early data from the B.C. government show the number of foreign buyers in Metro Vancouver’s housing market dropped in the first month of the tax, although some of that was due to a rush to close transactions before Aug. 2, including deals that involved buyers from China.

Of the total number of transactions, the proportion of foreign purchasers who closed their deals to buy homes in the Vancouver region was 0.9 per cent between Aug. 2 and Aug. 31, down from 13.2 per cent in the seven weeks leading up to the implementation of the tax, according to data based on land-title registrations the province released on Thursday.

Home sales in the region dropped an annualized 26 per cent last month, the Real Estate Board of Greater Vancouver reported. The average price for detached homes sold also fell, although it remains expensive at $2.6-million within the City of Vancouver.

In Toronto, average resale home prices have surged more than 17 per cent since the same period last year, the Toronto Real Estate Board reported earlier this month. Prices for detached houses jumped an annualized 18 per cent in the city to $1.21-million.

In a new report, the Conference Board of Canada said sales declined from July to August in 17 of 28 Canadian markets it surveyed, with one of the sharpest month-over-month percentage decreases in Greater Vancouver while Greater Toronto witnessed one of the highest. “Toronto sales have picked up, but you can’t say definitively that foreign buyers’ attention has shifted to Toronto,” said Robin Wiebe, senior economist at the conference board. “The next few months are going to be pretty interesting.”

In their letters, Mr. Cerqua and Mr. Ferris warned of “unintended consequences” if the province or the city were to match B.C.’s tax.

The letters, dated Aug. 5, were not made public by the organizations. The Globe and Mail obtained them this week. Neither Mr. Cerqua nor Mr. Ferris returned calls for comment on Thursday.

Foreign buyers could shift their focus from more expensive detached houses to lower-priced properties to pay less tax, they wrote, which “could actually hurt the ‘middle-class’ buyer the tax was designed to help.”

If Toronto were to implement a city-wide tax, that could push foreign demand to neighbouring communities, Mr. Cerqua wrote in a separate letter to Mr. Tory. And that would drive up home prices in the suburbs, which Mr. Cerqua suggests would in turn push up prices in Toronto.

A tax on foreign investors could also harm the GTA’s rental market, Mr. Ferris and Mr. Cerqua wrote, since investors buy many of the region’s newly built condos as rental properties. “If a tax were levied on foreign investors, it is possible that we could see fewer rental apartments available on the market,” which could reduce vacancy rates and push up rents, they wrote.

They urged both levels of government to tackle other issues, including a lack of serviceable land for new single-family housing and land transfer taxes they argue put an increasing burden on first-time buyers.

Mr. Sousa indicated on Thursday that his government will wait and see how B.C.’s new tax affects the housing markets in both provinces.

“It will be important to ensure that policies intended to promote housing affordability do not create any unnecessary walls that prevent newcomers from contributing to our society,” he said in a statement. “Our government will continue monitoring the housing market in both Ontario and B.C. over the course of the next few months to see the impacts of the recent decision by the government of B.C.”

Private-sector economists have predicted that Ontario’s housing market is set for a “soft landing” over the next few years as interest rates rise, Mr. Sousa added.

Mr. Tory said he understands the affordability challenges. “The City of Toronto is participating in the federal government’s housing market working group, which brings all levels of government together to tackle how we can make the cost of housing more affordable,” a statement from the mayor’s office said.

Lack of supply driving GTA house price surge, studies say

TAMSIN MCMAHON - REAL ESTATE REPORTER

The Globe and Mail

Published Monday, Aug. 15, 2016 

Toronto is in the midst of a housing heat wave, with sales activity and prices both breaking new records in July. But one thing that seems capable of putting the brakes on the market is what the Toronto Real Estate Board has called the “troubling trend” of a shrinking supply of homes for sale, particularly detached homes.

Several new reports out Monday point to just how much the lack of supply – particularly of detached houses, townhouses and other so-called “ground-oriented” housing – has helped drive the region’s house prices into the stratosphere.

Frank Clayton, senior research fellow at Ryerson University’s Centre for Urban Research and Land Development, examined a handful of recent surveys of consumer housing preferences in the Greater Toronto Area (GTA). He found that despite provincial policies that have encouraged a dramatic shift toward building condos rather than houses, most prospective buyers in the region say they prefer a detached house or other low-rise properties, such as townhouses.

Millennial home buyers prefer condos in slightly higher numbers, but most also say they are looking to purchase a low-rise house, according to Mr. Clayton’s research.

House sales numbers back up his research. Low-rise houses made up 66 per cent of all homes sold in the region last year, compared to 34 per cent for condos. Detached resale home prices grew 12 per cent last year, even as resale condo prices rose just 5 per cent.

“Many households demand a single-detached house with a yard as their preferred abode,” Mr. Clayton wrote, warning that to restrict the supply of low-rise housing and encourage more high-rise condo construction “will lead to even higher house prices … and huge capital gain windfalls for the lucky owners of existing houses and vacant lands on which new ground-related homes could be built.”

Detached and semi-detached properties made up less than 27 per cent of new housing starts in the GTA last year, down from nearly 40 per cent in 2009, CIBC World Markets deputy chief economist Benjamin Tal and researcher Katherine Judge point out in a separate report.

While new home construction has picked up steam in Ontario this year, much of the growth has come outside of the GTA, in communities such as Hamilton, St. Catharines and London, says Bank of Nova Scotia senior economist Adrienne Warren.

Both Mr. Clayton and the CIBC economists point the finger at provincial policies aimed at curbing urban sprawl that have restricted the amount of new land available for low-density housing developments and driven up the costs of building new houses. The Ontario government recently proposed even higher density targets for municipalities, which will also add to the shortage of land for detached homes, the CIBC economists say.

At the same time, extended low interest rates have created an “affordability mirage” that has only fuelled demand, enabling more people to stretch themselves financially to buy into the GTA housing market, even in the face of skyrocketing prices.

With little room for new supply of low-rise housing, Mr. Tal and Ms. Judge suggest that financial regulators instead continue to target demand by tightening mortgage lending standards even further. They propose increasing the qualifying rate for borrowers who take on five-year, fixed-rate mortgages. Ottawa should also raise the minimum down payment on insured mortgages between $500,000 and $1-million above the current 10 per cent. Furthermore, regulators should keep a closer eye on the private mortgage industry that targets subprime borrowers, which the economists say has increased its share of the mortgage market to 6 per cent.

They also argue that Toronto should be active about stemming the tide of foreign money into the region’s housing market, which they estimate accounts for as much as 15 per cent of home sales, including locals who get money from family members abroad to buy homes. The CIBC economists propose a “flipping tax” on foreigners looking to speculate on GTA home prices, a tax on empty units and higher land transfer taxes for more expensive properties. Governments could also enact rules limiting international buyers to purchasing only newly built homes, similar to Australia.

But the most important changes will come from policies that encourage more people to rent instead of buy, Mr. Tal and Ms. Judge said. Too few people are opting to rent in Toronto’s increasingly expensive housing market, they said. A shift toward renting will be critical in easing Toronto’s affordability woes and preventing a house price correction when interest rates eventually rise.

“While we all hear about the tight rental market in the GTA, the reality is that the propensity to rent in the GTA did not rise in recent years in a way that is consistent with the rapid pace of house price appreciation,” they wrote.

The economists called on municipalities to provide more tax incentives to new rental housing developments, lower development charges for new rental buildings and find ways to encourage developers to build larger, family-friendly rental units.

New home prices more than double as supply dwindles: Report

By TESS KALINOWSKIReal Estate Reporter

Fri., July 22, 2016

The cost of a new low-rise home in the Toronto region has more than doubled in the last decade to $887,543 in June, up from $393,398 in 2006 — a trend that is being fed by a record low supply within the same period.

A report on housing trends over the last decade from the Building Industry and Land Development Association (BILD) shows that the price on new low-rise homes, including detached, semi-detached and townhouses, has risen more than $100,000 in the last year alone.

The building and renovation industry has been raising concerns about the provincial land use policies since they were introduced in 2006.

But with Queen’s Park expected to launch new higher intensification targets in the fall, BILD wants the province to look at the potential impacts.

“We’re just starting to feel the effects of their existing policies in terms of price and supply. We’re encouraging them to take a hard look at the numbers and to understand the effects of their current policies before they increase numbers,” said Michelle Noble, vice-president of marketing and communications.

Consumers also need to be part of the discussion because millennials still want to buy detached homes, she said.

“It’s really important for people to enter in on this conversation about what do they want their housing choices to be. We see they change as your life changes and you age but we’re being forced to build housing supply that doesn’t always take that into account,” said Noble.

Despite the region’s growing population, the inventory of new homes has actually dropped in the last 10 years by about 11,500 units.

BILD statistics released Friday showed that the cost of a high rise condo has also risen by 6 per cent in the last year alone.

Noble said the industry has been very responsive in adapting to Ontario’s new denser land use policies, creating products like stacked townhomes and innovative condo layouts.

“We’re following policy and every year we build fewer and fewer low-rise homes, especially detached homes, so all that exist become more valuable,” she said.

That has led to tough competition at sales centres with consumers lining up to buy and some developments selling out within hours or release.

But environmentalists, who support higher density targets for the Greater Golden Horseshoe, say there is enough land to provide housing development at existing rates through 2031.

“There’s no evidence to show there’s a lack of land for building new homes, either the low-density stuff that BILD likes or high density stuff that would be better,” said Tim Gray of Environmental Defence.

Proximity to urban amenities, not land supply, is driving prices, he said. “The real issue is what kind of housing future are we going to have. Are we going to have more diverse housing styles that actually meet the needs of our population? Are we going to grow our population in a way that means it’s dense enough for transit; that we leave our farmland in a state that we can continue to grow food; that we have walkability and higher quality of life?”

By the numbers

18,427: Inventory of new homes in the GTA in June 2016, including 2,064 low-rise units — townhomes, semis and detached houses

29,968: New home inventory in June 2006, including 16,363 low-rise homes

4,166: New homes sold in the GTA in June — 22 per cent fewer than last June

31%: Decline in number of new low-rise home sales in June year over year

14%: Reduction in the number of new condo sales in June over last year

Risk of speculation in Toronto condos mitigated by presales: CMHC

ANDREA HOPKINS

OTTAWA — Reuters

Published Tuesday, Jul. 19, 2016 9:25AM EDT

Most Toronto condominium projects do not begin construction until 70 per cent of units are sold, curbing the risk of speculation, Canada’s housing agency said on Tuesday in a report that suggested overbuilding fears may be overdone.

A prolonged Canadian housing market boom, particularly in the two major markets of Toronto and Vancouver, has sparked fears of a bubble. Condo construction has jumped in both cities to meet the demand of buyers priced out of more expensive detached homes.

But the Canadian Mortgage and Housing Corp report noted 79 per cent of projects begin construction after reaching 70 per cent presale threshold, and that current unsold inventory is largely concentrated in downtown Toronto and the suburb of Markham, where condo markets are more active.

“Inventory management therefore continues to be necessary to make sure that condominium units currently under construction do not remain unsold upon completion,” the report said.

The CMHC, which has played down the likelihood of a national bubble while flagging what it sees as overbuilding and overvaluation in some cities, said condos account for about 50 percent of residential construction in Toronto.

Some 43,860 units were under construction across Toronto in the first quarter of 2016, and 1,373 units were completed and unsold. The unabsorbed inventory rate was 5.8 per cent, the lowest level in the past two years.

“The current inventory level is low compared to the highs witnessed during the early 1990s and has eased from a slight increase in 2015,” the report noted.

Toronto’s last housing bubble burst in the late 1980s, fueled by huge speculative investment in the condo market, but the CMHC said the same risks were not seen in the current market.

It said more conservative underwriting by most lenders have increased presales to the 70 per cent threshold.

Still, some speculation was occurring, either in small projects, in projects by large-scale reputable developers who have more equity available, or in multi-phase projects with high or full absorption in their early phases, it said.

The average absorption rate in Toronto was unchanged at 94 per cent, while the average project size has increased to 280 units in the first quarter of 2016 from 205 units in the first quarter of 2014, the report showed.

Home Prices in Canada’s Biggest City Gain Most Since 1989

by Bloomberg14 Jul 2016

by Erik Hertzberg

May was the biggest month for Toronto new home prices in 27 years.

Prices in Canada’s largest metropolitan area rose 1.9 percent in May, and were up 6.4 percent from a year earlier. Nationally, home prices rose 0.7 percent in May, the largest monthly increase since 2007, Statistics Canada reported Thursday.

The data adds to evidence that Toronto’s housing market may be overvalued. Policy makers including Bank of Canada Governor Stephen Poloz have warned price gains there and in Vancouver are unsustainable.

Builders cited market conditions and the higher cost of land as reasons for the gains in Toronto, where new house prices have been rising for 16 consecutive months, Statistics Canada said.

New house prices in Vancouver also recorded large gains in May, rising 1.1 percent in the twelfth consecutive monthly gain. Prices in the west-coast city are up 5.1 percent from a year earlier.
Nationally, new home prices rose 2.7 percent from a year earlier, the largest increase since 2010.
Economists were expecting a national increase of 0.2 percent in May and 2.2 percent from a year earlier, according the median estimate in a Bloomberg survey.

Statistics Canada’s new home price index doesn’t include condominiums or apartments, which comprise about a third of the new real estate market.

Bloomberg News

Toronto-area home prices climb 16.8% in June

By TESS KALINOWSKIReal Estate Reporter

Wed., July 6, 2016

The average price of a home in the Toronto region rose to $746,546 in June, up 16.8 per cent from the same month last year, as the supply of housing continued to decline, according to monthly statistics issued by the Toronto Real Estate Board (TREB) on Wednesday.

The board is planning to release additional research this year to contribute to the escalating discussion about housing prices in the city.

“As the federal, provincial and local levels of government discuss housing policy in the coming months, issues affecting the lack of supply in the GTA should be of paramount importance,” said TREB president Larry Cerqua.

“There is no doubt that demand is at a record level, but would-be home buyers continue to face an uphill battle against a constrained supply of listings,” he said.

While TREB recorded 7.5 per cent more sales, 12,794 in all in June, the number of new listings was down 3.8 per cent.

The real estate board has said that the low supply is, in part, a result of homeowners being reluctant to sell their properties because of the high price of finding another home. Many homeowners are renovating rather than moving.

In the city of Toronto, home prices rose to $775,400 on average in June from $682,489 the same month last year.

Across the region, detached homes rose in price about 20 per cent over last year. Semi-detached homes, which have been in particularly short supply this year, rose 16.4 per cent and townhomes increased 14.9 per cent. The average price of a condo rose 7.7 per cent in the same period.

The federal government has recently announced a provincial working group to look at policy options for cooling the climbing Toronto housing market. It has also promised to look more closely into the extent that foreign investment is fueling the high prices here and in the Greater Vancouver area.

GTA real estate market on pace for another year of record-breaking sales

By SUNNY FREEMANBusiness Reporter

Sales in the first quarter of 2016 rose 15.8 per cent from the opening three months of last year, according to the Toronto Real Estate Board.

Toronto real estate agent Elli Davis just closed a “bully offer” for $300,000 over a $2.65 million listing price, a type of deal she’s making more often in the busiest market she’s seen in nearly 30 years.

The increasingly competitive Greater Toronto Area real estate market is on pace for another year of record-breaking sales and double-digit price growth as buyers bid aggressively for the few houses on the market. Sales in the first quarter of 2016 rose 15.8 per cent from the opening three months of last year, according to the Toronto Real Estate Board

.

Davis, a Royal Lepage agent in upscale central Toronto, said a lack of housing supply is pushing more buyers to make hard-to-resist deals days before the seller is slated to accept bids. These are also known as bully offers.

“There were no conditions and the owner said ‘thank you very much, I’ll take it,’” she said of the home that went for $300,000 over asking.

The 10,326 homes sold in March was a 16.2-per-cent increase from the year earlier and accounted for nearly half the 22,575 homes that changed hands in the first quarter.

The average selling price across all housing types in the Greater Toronto Area rose 12.1 per cent year-over-year in March to $688,181.

The market could have experienced even stronger sales growth if it were not constrained by a deficit of new listings, said Jason Mercer, TREB’s director of market analysis.

“That’s why we’re seeing strong increases in selling prices, yet on the other side, if we did see more listings come online, they’d be absorbed in short order because of pent-up demand,” he said.

“I think the first quarter certainly suggests that we could be on track for another record year and likely the only thing that could slow that down is if we continue to see a dip in listings.”

The number of new listings was down compared to the same period last year, meaning there were more buyers competing for fewer homes. The number of homes listed for sale in the first quarter fell to its lowest level for a first quarter in at least 12 years, according to an analysis by National Bank.

A competition among buyers for fewer homes often results in bidding wars that drive prices higher. In March, the average detached GTA home inched closer to the $1 million mark, sitting at $910,375.

Davis said she is astounded at the prices. Nearly half of the 23 agents’ open houses listed for Tuesday in Toronto’s central core were for properties valued between $3.5 million and $16.8 million, she said.

Toronto is a seller’s market, with sales-to-new-listing ratios hovering around 70 per cent — the highest ratio since the 2008-2009 recession, said Robert Kavcic, senior economist at BMO.

He doesn’t see this abating any time soon as strong job and population growth in the GTA will continue to drive demand, while few new detached homes are being built.

“This has been more of a sustained gradual increase in demand and no new supply coming on board, so this is probably going to persist longer than back in 2009.”

Davis said the market is stronger now than it was coming out of the recession, adding she’s the busiest she’s been since 1989.

“We didn’t have a terrible winter, I think that helped, mortgage rates helped, and demand is high and supply is low,” she said.

“All those things together make a busy time.”

Canadian home resales slip in May from April: CREA Craig Wong OTTAWA — The Canadian Press

Canadian home sales started off the year at a torrid pace, fueled by Vancouver and Toronto, but the Canadian Real Estate Association says sales in the country’s hottest markets are expected to slow in the second half in the face of high prices and a shortage of available properties.

“Activity should begin to rebalance away from B.C. and Ontario as supply shortages put upward pressure on home prices and constrain transactions even as housing demand remains strong in these provinces and interest rates remain low,” CREA said in its latest outlook Wednesday.

“Accordingly, sales activity over the second half of the year is expected to ease in B.C., Ontario and on a national basis.”

Still, due to the strong start to the year, the association raised its full-year forecast for home sales to a record 536,400, an increase of 6.1 per cent. That compared with its March forecast calling for an increase of just one per cent to 511,400.

The new forecast came as CREA reported that home sales through its MLS system dropped 2.8 per cent month-over-month in May. But compared with a year ago, sales in May were up 9.6 per cent and stood 15.1 per cent above the 10-year average for the month.

TD Bank economist Diana Petramala said even with the drop in sales in May, the spring selling season has been a hot one for Ontario and British Columbia.

“In fact, May’s decline looks more like a supply story rather than a demand story, with not enough homes on the market to fulfil what appears to be insatiable demand,” Petramala said.

For May, the number of newly listed homes fell 3.2 per cent.

The national sales-to-new-listings ratio climbed to 64.8 per cent in May, suggesting a seller’s market and the highest reading since October 2009.

CREA says a ratio between 40 and 60 per cent is generally consistent with a balanced market.

The national average price of a home sold in May was $509,460, up 13.2 per cent from a year ago.

Excluding Vancouver and Toronto, the average price for a home sold in May was $375,532, up 9.1 per cent from May 2015. The average price for Canada, excluding the provinces of British Columbia and Ontario, was $310,007 in May, down 0.7 per cent year over year.

Last week, the Bank of Canada warned that house prices in Vancouver and Toronto were climbing at an unsustainable pace and that they had outpaced local economic fundamentals.