Real estate experts say Ontario’s decision to increase and expand its foreign buyers tax won’t do much to cool the province’s hot real estate market.
The industry's doubts come a day after the province announced the non-resident speculation tax would be moved to 20 per cent from 15 per cent and be applied beyond the Greater Golden Horseshoe starting Wednesday.
The province‘s changes to the tax targeting non-resident homebuyers were coupled with the closure of a loophole that gave rebates to foreign students completing full-time studies for at least two years after a home purchase and foreign nationals who continuously worked full-time in Ontario for a year after buying.
They'll be joined by more housing legislation the province is set to table Wednesday.
But don't expect the policies announced Tuesday to send housing prices plummeting or quell the bidding wars that have become the norm in the market, said experts.
"Everyone in the industry, myself included, are well aware that this isn't actually going to affect the market," said Michelle Gilbert, a Toronto broker with Sage Real Estate Ltd.
Gilbert feels this way because Statistics Canada data showed non-residents owned only about 3.4 per cent of all residential properties in Toronto five years ago.
Foreign buyers may have initially been deterred from buying properties in the region, when the non-resident speculation tax was implemented in parts of Ontario in 2017, but their attitudes have since shifted, she said.
"Foreign investors quickly realized even with a dip our market is still a safe haven for their money and they already look at that tax as just the cost of doing business," she said.
"So adding this additional five per cent, I don't foresee it affecting the amount of foreign buyers that do invest in let's say the Greater Toronto Area."
While BMO Capital Markets chief economist Douglas Porter said he'll keep an open mind on the impacts of the tax hike, but right now he's "not convinced it's going to have a big effect."
He believes non-resident investors were a big source of the heat Toronto and Vancouver's market saw in 2016 and 2017, around the time foreign buyers taxes were implemented in both provinces.
Policy-makers had a "tremendous under-appreciation" for how these investors' were fuelling heated conditions, he said.
However, he believes the dominant force in Ontario's current market is intense inflationary pressures, which even pushed up prices in rural and suburban markets over the last two years.
But he's not downplaying the impact these buyers can have.
"Many point to the supposedly low share of the market that such investors hold, but even a small increase in demand can have an outsized effect because there's no selling on the other side," he said.
"These are just pure new buyers and they tend to be pretty aggressive in terms of what they'll pay, and from what I've seen, they do tend to drive up the price in neighbourhoods and markets that they care to invest in."
Porter and Gilbert feel there are many measures the province could implement to cool the market, especially the GTA, where the average selling price for a home surpassed $1.3 million in February, up from just above $1 million last February.
It appears the province will likely tackle supply first because its Wednesday announcement has been teased to be about home supply.
But supply is a "slow moving beast" that will take "years, not months" to weigh on the market, Porter said.
"The only thing that's very straightforward and can be implemented relatively quickly is higher interest rates," he said. "Now unfortunately, it has massive spillover implications for all kinds of other areas of the economy."
The province could also implement a speculation tax, but Porter said, "that's pretty harsh medicine and it doesn't seem like they want to go down that route."