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Ontario Should Tax Foreign Purchases of Real Estate

Euphoria

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#1
The current flood of foreign home buyers in B.C. and Ontario has skewed what were already hot housing markets in both provinces. Now that the B.C. Government has imposed a 15 percent tax on home purchases by foreigners, some of that foreign demand has shifted to Ontario. If home ownership is getting out of reach for most would-be first-time homeowners, is it time to cool this market down and keep home ownership accessible to Ontarians?
 
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#2
Well they should.

But Kathleen Wynne was influenced by the Real Estate Board which made argument about unintended consequences from a tax. Really? The Real Estate industry has a vested interest to keep the music going as does the Ontario/Toronto government.

Inflated prices benefit a) Real Estate Agents and b) Ontario/Toronto Government via tax revenues.

Nothing new here. We have distorted allocations of capital here in Canadian housing. The longer this going on the greater the collapse will be.
 

Euphoria

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#3
I agree. I'm in the market right now and almost all the purchases are being made by people from China and the Middle East. Normally and in most other sectors we'd welcome the foreign investment, but it's disturbing that bidding wars and homes selling up to 20 percent over asking price is becoming the norm. Wynne is a fool not to act. When that bubble pops she'll have no defense. Much of our affordable housing crisis is attributable to this, as now the rental market is under pressure, and vacancy rates are declining.
 

algotr8der

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#4
Totally agree. The problem is there is no political will to do anything. The foreign buying helps the government fund their agendas/social programs. They are fully invested in keeping a bubble going.

The trigger will be the bond markets, China capital controls and a recession.

The Total Chinese Debt to GDP stands at an incredible 300% and has Quadrupled since 2007.

The world has been on a massive debt binge, especially since 2007.

Once the Bond markets implode these assets will come crumbling down.

Its simple math. Discount cash flows with a higher yield and you have a lower asset price.
 
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Euphoria

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#5
Wynne has to wake up and act now. Chinese property purchases are skewing home prices well beyond the level of affordability for the middle class in the GTA. We could also talk about the threat to the character of Toronto, which has seen so many losses to mega-development: Stollery's at the corner of Yonge and Bloor, the Second Empire buildings on Bay St., Walnut Hall on Jarvis, and now likely 401 Richmond in Queen West Village. If a tax on foreign property purchases isn't imposed, expect Toronto to look a lot more like Yujiapu, China, banal on the outside and cramped within. Neighbourhoods like Yorkville are disappearing under a theme-parkish simulacrum. Only the rich will be able to own homes, homes that will have the feel of a modular mall in a generic streetscape.

 
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#6
Wynne has to wake up and act now. Chinese property purchases are skewing home prices well beyond the level of affordability for the middle class in the GTA. We could also talk about the threat to the character of Toronto, which has seen so many losses to mega-development: Stollery's at the corner of Yonge and Bloor, the Second Empire buildings on Bay St., Walnut Hall on Jarvis, and now likely 401 Richmond in Queen West Village. If a tax on foreign property purchases isn't imposed, expect Toronto to look a lot more like Yujiapu, China, banal on the outside and cramped within. Neighbourhoods like Yorkville are disappearing under a theme-parkish simulacrum. Only the rich will be able to own homes, homes that will have the feel of a modular mall in a generic streetscape.

Be careful what you wish for. You may get it, and get the opposite.

See this article from The Star, at this link.

Canada's real-estate boom: a Chinese perspective

Think prices in Toronto or Vancouver are crazy? Try looking for an apartment in Shanghai, and you'll understand Canada’s appeal.

While Canadians complain about inflated real estate prices, try buying a home in Shanghai.

A two-bedroom unit in “Wonderful Place,” a complex of highrise towers in the city’s northeast, has no closets, a galley kitchen, a minuscule balcony crammed with clothing racks and an extra fridge in the living room. While the grounds boast trimmed lawns and burbling fountains — the area is marketed as a “21st-century eco-friendly knowledge-oriented garden district” — the home is run-of-the-mill. But the cost is not. It is listed for $2 million (Canadian).

A shabbier 400-square-foot apartment in a building nearby goes for $1.6-million. Parking is $60,000 extra.

“We don’t have a lot of vacancies,” a real estate agent for this area, New Jiangwan City, tells a Star reporter.

The real estate bubble in one of China’s richest cities is so frenzied the average price for new homes rose by 30 per cent in the first three quarters of 2016. In Beijing and Shenzhen, the housing markets have increased by a similar amount, making them among the most expensive cities in the world to buy a home.

The Shanghai government has tried to cool the housing market, making it more difficult for existing property owners to buy another home, and increasing down payment requirements.

“Real estate in China is just crazy,” says Bo Chen, a 39-year-old economist at Huazhong University of Science and Technology in Shanghai. “People have money and they want to put it somewhere.”

For many, somewhere means Canada.

Vancouver became such a popular destination for Chinese buyers that it prompted a vocal and controversial backlash this summer. In July, British Columbia announced a 15-per-cent tax for foreigners buying homes in Vancouver, while Ottawa introduced new regulations preventing buyers from improperly claiming a primary-residence deduction.

However, this is may not dampen Chinese appetite for Canadian real estate.

“Property is the preferred asset class for Chinese people,” explains Matthew Moore, North America president at Juwai.com, a property search engine that lists real estate around the world for Chinese buyers. “Only 15 per cent participate in the stock market.”

Growing concerns about the government’s recent devaluation of the yuan, as well as the 2015 collapse of the stock market, has also led to an explosion of interest in overseas property.

Chinese are the fastest-growing segment of global property buyers and favour homes in dollar-denominated currencies, Moore says in a phone interview from Hong Kong, where he is based.

Canada is the No. 3 choice for such buyers, behind the United States and Australia.

For many Chinese, buying a house overseas is seen as a crucial investment in the next generation.

Take the example of a Shanghai high-tech executive who recently relocated his wife and 10-year-old daughter to a 6,000-square-foot home in Surrey, B.C. He commutes monthly back to Shanghai, and says the sacrifice is worth it because he wants his daughter to have a western education.

“In China, she studied for three hours a day and had no time for play dates or sports,” says the executive, who asked not to be named to protect his family’s privacy. “This way she will be well prepared to get into a western university.”

“I also feel safer putting my treasure outside China,” he adds.

Bo does not believe Chinese buyers will be dissuaded by Canada’s new regulations because most are not looking for a quick return on their investment.

While many critics in Canada blame Chinese buyers for driving up housing prices, a new report from the Canada Mortgage and Housing Corp. concluded it is unclear how much impact they are actually having on prices in the Vancouver area, where the benchmark price for single family detached homes rose by 70 per cent in three years.

Low interest rates, robust population growth and limited housing supply are also inflating Vancouver’s real estate market, noted the study.

Between five per cent and 10 per cent of greater Vancouver real estate transactions are estimated to go to foreign nationals.

In Toronto, which has more global buyers than Vancouver, there has not been the same degree of outcry blaming Chinese buyers for property price rises.

Toronto recently overtook Vancouver as the top city in Canada for Chinese buyers, according to Juwai.com.

The number of inquiries about Toronto was up 85 per cent in September compared with last September, says Moore.

Lu, a 50-year-old executive at a state-owned Shanghai media company, plans to buy a condo in Toronto this spring, where his son will live while he attends the University of Toronto.

“Do you think I can get a place for $1 million that is walking distance from the downtown campus?” asks Lu. “I made a lot of sacrifices saving money for a house for my son. It is that important to me.”

Lu requested his real name not be used because officially the Chinese government permits citizens to move just $50,000 outside the country every year. People get around such restrictions by using underground banking services or getting family members and relatives to help.

As for Bo, he isn’t yet eying the Canadian market. While he paid just under $2 million a year ago for his three-bedroom unit in Wonderful Place, it has already appreciated by 50 per cent.

He knows that should he decide to move to Canada, his money will go even farther.
When it comes time for them to sell, they'll just sell at a price that includes the added costs. All the added costs.
 

Euphoria

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#7
The article emphasizes my point. We need them to sell. We need the inventory. We need prices to drop. A thirty percent drop in home prices would still make us more expensive than Chicago (based on purchasing power, not exchange rates). It's gotten out of control here. Wynne needs to act.
 

shal1n

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#8
Wynne wont act because she doesn't represent the interest of the people of Toronto or Ontario for that matter.

She represents the interests of big lobby interests, of which the Real Estate Board is one.

They came begging and crying to her for no tax. Why wouldn't they. They have become very wealthy over the past decade and a half.

This is why I see a Kevin O'leary type figure taking over Canadian politics. No surprise to me why Trump won in the US.

A global wave of anti-political establishment sentiment is taking over.
 

cdr108

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#9
Wynne wont act because she doesn't represent the interest of the people of Toronto or Ontario for that matter.

She represents the interests of big lobby interests, of which the Real Estate Board is one.

They came begging and crying to her for no tax. Why wouldn't they. They have become very wealthy over the past decade and a half.

This is why I see a Kevin O'leary type figure taking over Canadian politics. No surprise to me why Trump won in the US.

A global wave of anti-political establishment sentiment is taking over.

the Conservatives aren't better - Hudak works for the R/E industry now.

Trump may be "anti-political" establishment, but he's BIG BUSINESS & ESTABLISHMENT all the way.
the US will be sorry what they wished for.


back on topic, yes Ontario gov't should apply 15% tax to foreign buyers.

sure, when it comes time for them to sell, they'll just sell at an ASKING price that includes all the added costs but it'll just languish for months on the market when other comparable properties (most units are dime a dozen in a condo building - identical/mirrored floorplan on 30, 40, 50, 60, 70+ floors; and many condos buildings selling equally horrible layouts) being sold by non-foreign buyer/seller can under price theirs.
 
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#10
I think the point is politicians care more about themselves than the people they supposedly represent. Do favors for industry so when you leave office you got a club med job with benefits waiting for you. Treachery.

Ontario should tax foreign buyers. Not 15% but 30%. We don't need their money here. If our economy depends on foreign home buyers then that tells you a lot about the dismal state of our crappy economy. What a joke.

Foreign purchasers don't provide a single benefit to this country and instead extract maximum gain for themselves and their families.
 
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#11
...

Ontario should tax foreign buyers. Not 15% but 30%. We don't need their money here. If our economy depends on foreign home buyers then that tells you a lot about the dismal state of our crappy economy. What a joke...
The bad news with 30% tax is that in the future, they'll try to sell at a price that includes the taxes, expenses, renovations, and other costs. And a profit, of course.
 

Admiral Beez

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#12
The bad news with 30% tax is that in the future, they'll try to sell at a price that includes the taxes, expenses, renovations, and other costs. And a profit, of course.
That's why a tax isn't the answer. If the goal is to stop foreigners from buying real estate, then pass that law - to buy residential real estate in Canada you must be a resident (sorry offshore Canadian citizens, this applies to you too). That's the law in Bermuda, where even British citizens cannot buy property unless they are a legal resident of the territory.
 

rbt

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#13
That's why a tax isn't the answer. If the goal is to stop foreigners from buying real estate, then pass that law - to buy residential real estate in Canada you must be a resident (sorry offshore Canadian citizens, this applies to you too). That's the law in Bermuda, where even British citizens cannot buy property unless they are a legal resident of the territory.
I don't mind that for resale. I'd tweak it a touch and let them purchase new developments (en-mass even) to encourage creation of new housing stock which would push prices down further.
 

shal1n

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"The bad news with 30% tax is that in the future, they'll try to sell at a price that includes the taxes, expenses, renovations, and other costs. And a profit, of course."

That all assumes that Chinese wealth is unlevered wealth.

If that isn't the case and a good chunk of Chinese wealth is backed by debt issuance then selling to recoup all costs is a pipe dream.

Sure, the smart ones have cashed out of the Chinese boom, closed whatever shady or non-shady businesses that got them rich and are sitting on a pile of cash. In all booms, most are still in the game (why else are wives/kids in Canada and dad is back in mainland running a business?) and given the amount of bank credit issued by Chinese banks (see link below) I can bet that most wealth is perceived wealth that is highly levered.

http://fortune.com/2016/12/08/china-banks-hiding-trillion-loans/

We are already seeing Chinese and Canadian authorities co-operating on asset freezes across borders.

http://www.cbc.ca/news/canada/british-columbia/china-real-estate-vancouver-fugitive-1.3655136

Selling to recoup all costs is nice in theory but doesn't play out when you have to sell.

Its also a nice concept to be able to sell equity shares at your all in cost of acquisition so you break even but when the market is falling and there is panic and you are levered well.... we all know what happens.

Tax, legislation to ban purchases, etc - are all good options and should definitely be tried. Canadians need to start making some noise.
 
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Admiral Beez

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"The bad news with 30% tax is that in the future, they'll try to sell at a price that includes the taxes, expenses, renovations, and other costs. And a profit, of course."

That all assumes that Chinese wealth is unlevered wealth.

If that isn't the case and a good chunk of Chinese wealth is backed by debt issuance then selling to recoup all costs is a pipe dream.

Sure, the smart ones have cashed out of the Chinese boom, closed whatever shady or non-shady businesses that got them rich and are sitting on a pile of cash. In all booms, most are still in the game (why else are wives/kids in Canada and dad is back in mainland running a business?) and given the amount of bank credit issued by Chinese banks (see link below) I can bet that most wealth is perceived wealth that is highly levered.

http://fortune.com/2016/12/08/china-banks-hiding-trillion-loans/

We are already seeing Chinese and Canadian authorities co-operating on asset freezes across borders.

http://www.cbc.ca/news/canada/british-columbia/china-real-estate-vancouver-fugitive-1.3655136

Selling to recoup all costs is nice in theory but doesn't play out when you have to sell.

Its also a nice concept to be able to sell equity shares at your all in cost of acquisition so you break even but when the market is falling and there is panic and you are levered well.... we all know what happens.

Tax, legislation to ban purchases, etc - are all good options and should definitely be tried. Canadians need to start making some noise.
I wonder how far we're off from collapse of the Chinese economy. I've read that they need at minimum 7-8% annual growth just to keep the people employed and fed, mostly on the backs of exported goods to the west.