Toronto may be next on the list of global cities with a tax on home purchases by foreigners as government officials search for ways to cool scorching price gains.
Ontario Finance Minister Charles Sousa surprised many last week, saying he was reconsidering imposing a tax to curb price increases that have accelerated in Canada’s biggest city, reversing a stance last year to leave the market to its own devices.
“A year ago I was saying, ‘Let market forces prevail,’” Sousa told reporters in Toronto. Now he’s concerned about people facing “bidding wars everywhere you go.” Sousa said he is considering a number of options for next steps, and a foreign tax is just one.
Governments from the U.K. to Australia and Hong Kong have imposed levies and restrictions on foreign buyers in recent years in an effort to tamp down home values that are shooting beyond the reach of many local residents. The Canadian province of British Columbia added a 15 percent levy to home purchases by foreign nationals in Vancouver, and the city in January began taxing empty homes.
Sales in Vancouver have since plummeted, with some of the foreign buyers probably shifting east to Toronto. The average cost of a home in Toronto and its suburbs jumped 28 percent in February from a year earlier to CAD875,983 (USD648,588), the sixth straight month of above-20 percent growth. That’s more than the 18 percent gain in Manhattan, which pushed the median price to $1.25 million in the 12 months through January.
Sousa’s comments are likely to set off fierce debate in Toronto, with the real estate industry arguing Friday that a tax would do nothing to improve the underlying problem in the market — the lowest supply of homes in the city in more than 15 years, according to the Toronto Real Estate Board.
“Imposing a tax on foreign buyers will not have the desired effect of cooling the housing market and could create adverse effects,” Larry Cerqua, president of TREB, said in a statement. “It will do little to correct the real issue impacting housing affordability, which is the lack of available housing supply.”
The real estate board said a survey it conducted last year showed only about 5 percent of purchases brokered by its members were on behalf of a foreign buyer and 80 percent of buyers purchased a home as a residence, a place for another family member to live in, or as an investment to rent out, which helps increase rental supply.
Shaun Hildebrand, senior vice president at Toronto-based real estate research firm Urbanation, said research shows foreign buyers represent only about 5 percent of new condo sales as well. Wealthy immigrants represent a “much more substantial component of the market,” and many rent out their purchases. Kim Chipman, Bloomberg
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