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Ontario Should Tax Foreign Purchases of Real Estate

Euphoria

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I actually think if the Libs don't act soon on this, they're basically selling out their own citizens, as foreigners are already getting a huge discount on the exchange rate against the U.S. dollar. First-time home buyers can no longer buy and homeowners can't move up. This isn't the norm in the U.S.. We're getting fleeced and shouldn't put up with it. We need to take care of our citizens or what's the point in having a nation state? We're just selling out Canada to the highest foreign bidder because Canadians can't afford Canada.
 

narduch

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I'm just wondering if the foreign buyer is an easy boogeyman.

I can't speak for the condo industry, where its possible that its more prevalent. But in my own neighbourhood, I've never noticed a home go for sale that then sat empty. People always end up moving in. And its always a large family.

That being said, foreign buyers don't need to buy a lot of homes to skew the market. All they have to do is over-bid on enough properties. Which in turns forces locals to over-bid.

One thing is certain the market is in over drive now. The gains are not sustainable at this point.
 

Admiral Beez

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is it time to cool this market down and keep home ownership accessible to Ontarians?
Yes, but taxation won't do it, the market expectations will adjust overtime, with buyers incorporating any tax into their cost. Vancouver may have slowed their foreign-buyers' market down, but let's see in a year or so.

If you want to keep home ownership for Ontarians, then pass legislation to that effect. That's what Bermuda does for example. To protect their small stock of housing for the locals, you must be a permanent resident of the territory to own property/housing. Even celebrities like Oprah have tried and failed to have this rule overturned.

http://www.nytimes.com/2006/09/03/realestate/03nati.html

In 2005, it announced that Bermudians could no longer sell property to non-Bermudians.
 

Euphoria

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If foreign ownership has such a small impact on real estate prices, why have home prices in B.C. substantively decreased since the implementation of the foreign buyers tax?

http://www.theglobeandmail.com/real-estate/vancouver/vancouver-home-sales-drop-further-as-market-continues-to-soften/article33878876/

I think there's some confusion about what is being proposed. This isn't a tax on immigrants. We're talking about imposing a %15 tax on buyers who are not Canadian citizens. They are living in other countries and buying Canadian property. Middle class Canadians cannot compete with wealthy foreign investors who have no intention of living in the homes they are buying, but can turn a profit flipping them in a market seeing %20 year over year price increases. Failure to impose such a tax is a failure of governance and makes housing less affordable for Canadians.
 

Davidackerman

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Good story From today's WSJ


Can Housing Bubbles Be Stopped? Australia’s Tiny Apartments Say No
Regulators try again to curb the impact of foreign money on home prices
By
Rob Taylor and

Rachel Pannett
April 3, 2017 5:15 a.m. ET

New homes in the Sydney suburb of Putney Hill in January. The median house price in Sydney hit a record $858,000 last year. Photo: /Bloomberg News

SYDNEY—From Australia to Canada, authorities are learning a hard lesson in their efforts to curb the foreign money flooding their property markets: deterrents quickly lose their punch.

In recent years, regulators in several countries have raised taxes on residential real-estate purchases, required banks to demand bigger down payments and taxed empty homes—to little long-term avail.

Now they are trying again.







Australian regulators on Friday ordered banks to limit the flow of interest-only loans—a villain in the U.S. subprime mortgage crisis—to 30% of new loans from about 40% now and to restrict loans to people making small down payments. The country’s corporate regulator said on Monday it was investigating whether lenders and mortgage brokers are inappropriately promoting interest-only loans. New South Wales state, home to Sydney, is considering a further property-tax rise for foreigners.

The moves are an attempt to blunt a price rise that has resumed after the last crackdown starting in late 2014.

House prices in Sydney and Melbourne, the nation’s two biggest cities, rose by about 19% and 16% in the year through Mar. 31, much of it in the last six months, according to an analysis by data company CoreLogic released on Monday.

The median house price in Sydney hit $821,000 last year, according to Demographia, a U.S. think tank. It said the figure, equivalent to 12.2 times the average annual wage, made Sydney the world’s second most expensive city after Hong Kong on a house-price-to-income ratio.

Demand in Melbourne is driving up valuations of house land plots by $7,500 a week, said Giles Bray, a local mortgage broker. Developers are now building 300-square-foot apartments—roughly a third of the average new American unit—with 8-foot ceiling heights to pack in more units. In the past three years, foreigners have bought thousands of them sight unseen. “They are poorly built and lack light,” Mr. Bray said.

The gains are testing the limits of government measures aimed at preventing housing bubbles from developing in cities around the world.

The frothiness is driven by ultralow interest rates at central banks that spur investors to hunt for returns in tangible assets. Chinese investors also are a big driver of the phenomenon.

The concern: foreign, speculative investors are making properties unaffordable for locals and adding economic risk because these buyers are more likely to flee in a downturn.

In 2010, when Australian prices last rose sharply, the Reserve Bank of Australia tightened policy to cool things off. But lately the central bank has been keeping rates at a record-low 1.5% to aid an economy that is still struggling to adjust at the end of a long mining boom.

Australia narrowly avoided a recession last year—defined as two straight negative quarters—as it rebounded in the three months through December from a surprise contraction in the third quarter. The central bank meets again on Tuesday and is widely expected to keep rates unchanged.

Before the 2007-2008 financial crisis, many policy makers thought asset bubbles couldn’t be detected in advance and that it was therefore better to clean up afterward rather than try to influence their growth. Now, regulators generally believe they need to take action as risks rise.

Raising the Roof
Home prices are soaring again in Australia's capital cities...
Residential property price index, change from a year earlier

...with two of them among the globe's least affordable...
World’s least-affordable places by house-price-to-income ratio*

...as China dominates foreign buying in at least one major market.
Foreign property buyers in New South Wales, share of value**





*As of 3Q 2016 **October 2016-January 2017. Figures don’t add up to 100 because of rounding. Sydney is the capital of New South Wales. Sources: Australian Bureau of Statistics (index); Demographia (ratio); Credit Suisse (foreign buyers)



Home prices are soaring again in Australia's capital cities...
Residential property price index, change from a year earlier

...with two of them among the globe's least affordable...
World’s least-affordable places by house-price-to-income ratio*

...as China dominates foreign buying in at least one major market.
Foreign property buyers in New South Wales, share of value**

*As of 3Q 2016 **October 2016-January 2017. Figures don’t add up to 100 because of rounding. Sydney is the capital of New South Wales. Sources: Australian Bureau of Statistics (index); Demographia (ratio); Credit Suisse (foreign buyers)
Some places that have been favorites for Chinese investors in recent years—including London, and, most recently, New York—are rolling out policies that discourage foreign purchasers.

Canada has tightened housing-financing rules numerous times since mid-2008 to curb excesses. In Canada’s hottest market, Vancouver, British Columbia, the government last year introduced a new residential-property tax on outsiders and a separate vacancy tax on properties left unoccupied.

Vancouver’s latest efforts seem to be working. Web searches in China for Vancouver properties dropped 37% in December compared with a year ago, according to Juwai.com, an online real estate portal that targets Chinese home seekers.

But policy makers worry about whether cooling measures might just shift demand from one jurisdiction to another. Chinese buyer interest has been rising in the Seattle region since Vancouver’s tax-policy changes were introduced in August, brokers say.

Auckland overtook Toronto as the world’s “hottest” city for luxury real estate in 2015, partly because of New Zealand’s relatively open-door policies to foreign investment, according to a Christie’s International Real Estate survey. And Melbourne’s recent tax on unoccupied apartments may spur new buyer calculations.

“The [Melbourne] tax may be enough to divert buyers back to Sydney or Auckland, with the risk of course these cities follow suit,” said Jarrod Kerr, a director at Commonwealth Bank in Sydney.


Properties along the coastline in the Sydney suburb of Clovelly in 2015. Photo: Reuters

Policy makers and ratings firms also worry about a glut. In Australia, economists are looking at heat maps showing where cranes are clustered to predict which areas are at most risk of overheating.

Australia’s apartment boom, once primarily limited to central cities, is spreading to the suburbs. More than 100,000 apartments are under construction in the states of New South Wales and Victoria, roughly double the number five years ago.

Outsiders, mostly from China, are buying up a quarter of new supply in New South Wales and 16% in Victoria, according to Credit Suisse . Australian apartments still look cheap compared with their counterparts in Chinese cities like Shanghai or Shenzhen, analysts say.

“It is clear foreigners have been able to settle on their Aussie properties more recently despite the numerous impediments of capital controls and the lack of lending by Aussie banks,” Credit Suisse analyst Hasan S. Tevfik said. “There is little evidence so far to suggest the flows have stopped.”

Far to the west of Sydney’s glittering harbor, construction cranes are rising up in the once-downtrodden suburb of Auburn, an emblem of Australia’s housing boom. Citibank recently named the area as among those most danger of a supply glut, with rents already falling or stagnating in those places, a possible precursor to a fall.

“Inquiries are still strong, though perhaps not quite as hot as a year ago when I thought I’d need a ticket-line counter for people coming in,” said real-estate broker Themy Panagiotidis. “Look at the expensive cars around, the money is there.”
 

ttk77

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Rental prices are almost as out of control as purchase prices, so unless investors are letting the properties sit vacant this is just a supply/demand problem. If you want prices to stabilize then build more and put up highly punitive taxes on anyone who buys a unit and lets it sit vacant. Foreign investors shouldn't be treated any different than local investors in that respect. Can anyone explain to me why having rental/investment properties owned by foreigners is any worse than having them owned by locals when it comes to purchase/rental pricing? Do we have any numbers supporting this assumption that massive numbers of units are being bought and left vacant?
 

Admiral Beez

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so unless investors are letting the properties sit vacant this is just a supply/demand problem.
It has to be a supply issue. Unless housing starts/completions exceed population growth, prices will continue to rise. The greenbelt, along with the continued SFH zonings for new construction straggled the supply side, while nothing was (and arguable could be) done to control the demand side.

GTA Population


http://www.mondaq.com/images/article_images/264408c.jpg

GTA Housing Starts

http://www.edsc-esdc.gc.ca/img/edsc-esdc/jobbank/SectoralProfiles/ON/Construct_Fig1_EN.png
 
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Euphoria

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Planning legislation such as "Places to Grow" and the zoning of the Greenbelt created a development boundary around the GTA that has caused intensification on steroids. The intentions were noble: preserve the locally produced food supply, secure natural filtration systems for air and water, create local nature reserves for recreation and wildlife, and place a premium on land so that it's used efficiently. The only way to increase housing supply within this boundary in the long term is to build up or down. Intensification is supposed to make transit more viable and to make better use of serviced land. Yet the transportation infrastructure hasn't kept pace with the population density growth, damaging quality of life. Housing has gotten smaller and more expensive. Condo towers go up everywhere, sometimes in unseemly places. We risk losing the rich variety of housing and density options that made Southern Ontario such a desirable place to live, especially as all housing becomes less affordable.

Home ownership has provided a tax-sheltered, usable investment that has created wealth and upward mobility for many Canadians. That home ownership is becoming out of reach signifies a reduction of living standards for Canadians. It matters that we don't use what tools we have at our disposal to make home ownership affordable. What's the point in having political jurisdictions such as cities, provinces, and countries, if we can't use governments to set up systems that serve people? I'm all for foreign investment, but only if there's a net benefit for the country. Foreign owners of Canadian homes contribute minimally to the tax base and local priorities, especially if these homes are unoccupied.

There are ways of building within parts of the Greenbelt without having significant impacts. Conversely, there are ways of bringing more greenbelt into the city, through restoration of land such as river valleys and through using green roofs/walls, permeable sidewalks and roads, etc. We can prevent sprawl and have intensification, as long as the city is more naturalized, land accommodates development, and more transportation infrastructure is built. With limitations on land, I envision underground highways and transit, and a closer interface between nature and built forms: more natural light and greenery in buildings, architecture that complements landscapes and geography, greater energy efficiency, and better designed whole communities.
 
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Davidackerman

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Today's WSJ. It correctly points out how the tax in BC did nothing to make housing more affordable nor did it boost supply. Raising interest rates is the only true action to adjust the market.

Policy Makers Work to Prevent Housing Bubble in Canada’s Biggest Cities
Canada’s finance minister said he was concerned that ‘dramatic house-price increases will have long-term implications for housing affordability and housing-market stability’
Paul VieiraApril 6, 2017 3:19 p.m. ET


A home in Toronto shown Jan. 18. This Palmerston Road house sold for about $850,000 two years ago was recently sold again for about $1.4 million. Canadian leaders are seeking solutions to ensure there is affordable housing in cities such as Toronto and Vancouver. Photo: Carlos Osorio/Zuma Press

By
Paul Vieira
OTTAWA—Canada’s finance minister is pushing other levels of government to take steps to curb immoderate activity in Toronto’s real-estate market, as worries about a possible housing bubble mount.

In letters sent this week to the Toronto mayor and to Ontario’s finance minister, Bill Morneau said he was concerned that "dramatic house-price increases will have long-term implications for housing affordability and housing-market stability.”

The letters, which were viewed by The Wall Street Journal and reported first by the Toronto Star, are aimed at spurring regional lawmakers to pick up the baton after the federal government in Ottawa has moved multiple times to tighten mortgage-financing rules, according to a person familiar with the minister’s messaging.

The average price for a residence in Canada’s biggest city is closing in on the million-dollar mark, and data this week for March indicated house prices surged nearly 29% and sales advanced 17.7% year-over-year. The average home selling price in Toronto last month was C$916,567 ($683,546).

Mr. Morneau’s push for measures aimed at limiting the price run-up highlights the struggle federal authorities in Canada have had trying to tamp down overheating housing, especially in two of the country’s biggest cities, Toronto and Vancouver.

Interest from foreign buyers in hard assets such as real estate combined with a prolonged period of low interest rates has fueled a boom in the two cities. That boom has coincided with a buildup in household debt to record levels.

The Bank of Canada has signaled it is in no rush to raise its benchmark interest rate due to policy uncertainty in U.S. and excess capacity in the economy, eliminating for now the main lever for making mortgages less attractive. But at the same time, the central bank has pointed to the housing market as a risk to economic stability.

The chief executive of Canada’s largest lender, Royal Bank of Canada , also weighed in on those risks on Thursday. Dave McKay told shareholders at the bank’s annual meeting in Toronto that he was “increasingly concerned by the unhealthy combination of factors that have driven the [housing] market to the current point of strain.”

Mr. McKay said a combination of supply-and-demand imbalances in Toronto and Vancouver, low rates and speculative activity “are mixing to push prices up to unsustainable levels, stressing household balance sheets and locking many people out of the housing market.”

Last year, the government in British Columbia introduced a 15% surtax on foreign-led housing purchases in Vancouver, Canada’s third-largest city, which until recently was a popular destination for Chinese investors.

Since then, activity and price increases have cooled in the Pacific Coast city, with figures for March indicating Vancouver home sales fell nearly 31% on a year-over-year basis, while prices rose 12%.

But Toronto’s housing market has picked up steam since the B.C. tax was introduced, spurring concerns that some of the foreign buying activity has moved east. Canada collects little data on foreign buyers, a gap that policy makers have pledged to fix.

In his letters, Mr. Morneau requested a meeting with Toronto Mayor John Tory and the province of Ontario’s finance minister, Charles Sousa, to talk about policy steps to address ballooning house prices.

A spokesman for Mr. Tory said he welcomes talk on possible measures, including the possibility of a tax on vacant homes and an increase in the supply of rental units. Mr. Sousa said Ontario shares Mr. Morneau’s concern that first-time home buyers are being priced out of the housing market.

Last fall, Mr. Morneau introduced tougher rules for mortgage financing, in part to address concerns about the influence foreign investors are having on housing affordability. The provisions included a measure to prevent foreigners from claiming a so-called capital-gains tax exemption on Canadian homes bought and then sold in the same year. Also, Ottawa introduced a "stress test” to ensure new homeowners can afford their mortgages.

In its most recent quarterly assessment, Canada Mortgage and Housing Corp., the federal mortgage insurance agency, said nine out of 15 major Canadian cities, including Toronto and Vancouver, showed signs of problematic conditions.

“There is real urgency in the situation, before prices soar dangerously higher and this becomes a big bubble,” said Doug Porter, chief economist at BMO Capital Markets, adding steps to control demand can offer near-term relief.

Write to Paul Vieira at paul.vieira@wsj.com
 

Euphoria

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Raising interest rates in a substantive way is a blunt instrument that, given the high levels of household debt in Canada, would likely put the country in recession. Too many Canadians are barely managing their payments. Putting them under water isn't the answer. Slowing down and capturing taxes on foreign buyers who have money to burn is an easy measure to implement that won't damage the domestic economy. It should bolster it. This isn't a silver bullet. Zoning adjustments are needed. Existing housing must be utilized. The housing supply must also be increased.
 
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