Finance minister can't say how much foreign buyer tax will affect housing market
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TORONTO — Ontario's finance minister can't say how much a tax on foreign homebuyers — the centrepiece of the Liberal government's new package of housing measures — will affect the red-hot Greater Toronto Area market.
Economists and real estate experts have raised questions about the effectiveness of the new 15-per-cent levy, pointing to the government self-admitted lack of housing data.
When asked on Friday whether the government had any evidence to suggest foreign speculators were driving up house prices in the region, Finance Minister Charles Sousa cited a survey by the Toronto Real Estate Board that suggested foreigners were involved in about five per cent of property purchases.
Realtors have also offered anecdotal evidence about foreigners placing bids via phone calls, he said.
"Non-Canadians who are investing here are playing a role, so we're taking that to heart," Sousa said in an interview.
The Toronto Real Estate Board — which represents about 45,000 realtors and brokers — said its survey of 3,500 members, conducted late last year, found that 4.9 per cent of transactions in the Greater Toronto Area involved foreign buyers.
The board called that a minimal amount and not detrimental to the housing market.
"From our standpoint we feel that any public policy decision that's pointed at the housing market should have some empirical evidence to back up the issue and from our perspective, beyond our survey we haven't seen that," the board's market analysis director Jason Mercer said Friday.
Starting this week, homebuyers are required to give information about their residency and citizenship status and how they intend to use the property. Sousa said the government will now be able to assess "the degree and the impact" foreign buyers have on the market.
"We're now going to ensure that all the boxes are ticked, that we have full understanding of who's buying, why they're buying and to what purpose and we'll see how it proceeds," he said.
Until that happens, it appears Sousa — like many others in the province — is left with unanswered questions.
"Does it have an effect, does it create greater fairness in the system, does it enable people who are feeling frustrated and angry that they're going into bidding wars and they feel that it's because someone who doesn't live in Canada is parking their money?"
His staff later said he was speaking rhetorically.
"These are the kinds of questions we asked ourselves as we determined what measures to include in our Fair Housing Plan," spokeswoman Jessica Martin said. "In line with the view of many economists, we believe that the NRST (Non-Resident Speculation Tax) will help to reduce speculative behaviour in the housing market, and cool demand for residential properties in the Greater Golden Horseshoe."
Once legislation passes, the tax will be effective retroactively to April 21.
Foreign buyers who subsequently get citizenship or permanent resident status, as well as foreign nationals working in Ontario and international students will be eligible to have the tax refunded.
Sousa's office said the new tax is expected to be revenue neutral, and any money coming in would be used to offset the decrease in revenue from land transfer tax.
"The goal is to provide some stability to the marketplace and ensure everyone is paying their fair share."
Ontario had initially dismissed the idea of a foreign buyer tax like the one implemented last in Vancouver, saying the Toronto-area market was different. But on March 9, Sousa backpedalled on the issue, saying he didn't know if foreign or domestic speculation was driving demand.
In the Greater Toronto Area, the average price of detached houses rose to $1.21 million last month, up 33.4 per cent from a year ago.
Another part of Ontario's housing plan is a review of rules for real estate agents, aimed at making the homebuying process more transparent.
Sousa has said he knows buyers are "pissed" about bidding wars. On Friday he said he's investigating how more transparency can be added to the process, including whether buyers could be informed about other bidders and their offers.
"I mean, consumers would certainly like it," he said.
However, Sousa said it's not clear what "degree of disclosure" there should ultimately be and added that homeowners will always want to ensure they can maximize their profits.
He's also concerned about unethical practices in the industry involving "fake bids," used to entice real buyers to increase their offers, and "double-ending," where a real estate agent represents both buyer and seller in a deal and gets commission on both.
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