Canada wants to tax phantom foreign homebuyers to rein in red-hot property prices
- Home transactions from January to October rose 8.6 per cent from a year earlier and could break 2016’s record, according to association
- Average home price rose to a record C$607,250 in October, surprising industry analysts at a time when traditional market drivers are still weak
The proposal has gained traction in Prime Minister Justin Trudeau’s government as property agents recorded roaring business and surging prices this year despite the Covid-19 pandemic, suggesting improving sentiment among investors on the market outlook.
Prices rose 10.9 per cent in October from a year earlier, the most since July 2017, the association said in a November 16 market update. The unadjusted national average home price rose by 15.2 per cent to a record C$607,250 (US$474,508), influenced by sales in Greater Vancouver and Greater Toronto Area, two of Canada’s most active and expensive markets.
“Some cities remain wildly unaffordable while others are experiencing a bust,” said Natalka Falcomer, executive vice-president for corporate development at Ontario-based Chestnut Park Real Estate, an affiliate of Christie’s International Real Estate. While a foreign-buyer tax could hurt demand, it “does not necessarily mean a curbing in home prices”, she said.
While Canada does not issue official numbers of foreign holders, some industry estimates put them at 5 to 10 per cent of total transactions. Mainland Chinese, including Huawei Technologies chief financial officer Meng Wanzhou, are among the biggest property investors.
The Liberal government is considering the tax to keep a lid on home prices, making them more affordable for first-time local buyers. The measure would be akin to speculation and vacancy taxes imposed on foreign purchases over the past five years in so-called desirable cities. However, no details on the nature or quantum of the proposed tax have been revealed.
Vancouver increased the tax to 20 per cent in February 2019 from the 15 per cent set in August 2016. Toronto and its surrounding areas slapped a 15 per cent duty on foreign property investors in April 2017. While prices dipped slightly for a short period of time, they still remained among the most expensive cities, said Falcomer.
Notwithstanding the proposed tax and its impact, the housing market is likely to find ample support from local demand, according to Kevin Skipworth, managing broker and partner at Dexter Realty, the Vancouver-based partner of property consultancy Knight Frank.
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“Canada has a more stable climate, politically, and the location tends to be less dense and safer,” he said. “We had a significant amount of transactions in the last six months without having foreign buyers, so it is a market that is built by local buyers.”
The bullish signs in the housing market may be due to a lot of moves or “churn” in the market that would not have happened in a non-Covid world, Shaun Cathcart, a senior economist at CREA, said in the November report.
“For anyone waiting for the Canadian existing home market to begin to settle down following this summer’s surprisingly strong recovery, they’re going to have to wait a little longer,” he said.
Falcomer at Chestnut Park Real Estate said Trudeau’s proposed tax may have a varied impact on different parts of the housing market.
It may have marginal if any impact on “desirable markets” over the long run but cause a dent on other markets that depend on foreign capital, she said. Calgary – a city that historically sees booms and busts – may be adversely affected and slip down the totem pole of places to invest, she added.
