Six significant changes were recently implemented in Ontario in an attempt to cool Toronto’s overheated real estate market.
- A non-resident speculation tax of 15% will be imposed on all buyers who are not permanent residents, in Ontario, Canadian citizens, or Canadian corporations. The non-resident tax will not effect immigrants who have obtained permanent resident status, nor foreign nationals working in Ontario and international students. It is aimed at investors who do not plan to live in the city but are seeking to invest in its real estate.
- Expanded rent control applied to all private rentals in Ontario, as well as a law allowing the city of Toronto to impose a tax on vacant homes and to use surplus land for affordable housing.
- A federally imposed stress test will now be expanded to all insured mortgages (source: The Globe and Mail), not just mortgages with a downpayment of less than 20%. A stress test determines whether a homebuyer could afford their mortgage if interest rates were to rise. Consequently, the purchasing power of some first time buyers will be reduced significantly, making it harder for them to attain a mortgage.
- Foreign buyers must now file taxes in Canada the same year they buy a home, closing a tax loophole that allowed some foreign buyers to falsely claim capital-gains tax exemptions on primary residences.
- Mortgage rates expected to rise as a result of new consultations to make lending institutions more accountable for lending risks.
- A partnership with the Canada Revenue Agency to invest in more comprehensive reporting requirements, as a means of ensuring that correct taxes are paid federally and provincially on real estate income, purchases, and sales.
The measures are aimed at regulating prices and ensuring housing affordability for residents in Toronto, where property prices have been rising at a rate of 20% annually. Despite the focus on foreign speculators, there is a lack of data linking market instability to foreign investors.
Vancouver implemented similar changes in 2016, and while the number of sales plunged immediately following the foreign tax announcement, the market seems to have resumed its upward trend with a 12.5% year over year increase.
Meanwhile in the Greater Toronto area, average home prices rose to $1.21 million in March 2017, 33% higher than the average in March 2016.
The efforts to cool down the market are a reaction to Toronto’s severe lack of housing affordability; with first time buyers and young residents finding it near impossible to obtain homeownership.
How does this compare to investment regulations in Montreal?
Luckily for residents and buyers in Montreal, the concerns with the state of Canadian real estate begin and end in Toronto and Vancouver. The trends recorded in Alberta, Quebec and Atlantic Canada are encouragingly stable, with a strong economic improvement in Quebec and a refreshed focus on attracting economic investments in the region.
Quebec has emerged as a promising star in the Canadian economy, with a healthy GDP growth, and a vital housing market that is expected to continue growing in the coming years. The region is now among the healthiest for real estate investments, with steady 4-7% annual appreciation rates in the residential sector. In the first quarter of 2017 the aggregate home price in the Greater Montreal Area rose by 4.9% to $367,702, while Montreal West saw a 6.8% rise to $419,404. Home prices in Montreal Centre rose by 6.4% to $449,883.
The Quebec economy is in a strong fiscal position, unlike many other provinces, with a budgetary surplus for the third consecutive year. This has allowed the province to boost spending in large-scale public transit projects, health and education. Business investments have also been on the rise in the region, especially in the AI sectors and in cloud computing, with companies like Google selecting Montreal as the first Canadian Google Cloud Region, and opening up data centers in the city. The Federal government has also announced an investment of $40 million dollars into the artificial intelligence institute, in an effort to attract more tech companies to Quebec as well as promoting local talent in this domain.