The federal government’s announcement to implement a nationwide non-resident property tax next year has been panned by industry players, some of whom believe it’s nothing more than empty politicking.
“It’s being applied nationally because elections are national, but they’re appealing to voters in small rural towns who worry foreign buyers are going to walk all over their town,” said Dustan Woodhouse, president of Mortgage Architects, adding that the tax is needlessly punitive.
“Technically, they’re foreign buyers—they’re on the path to becoming Canadian—but because they’re foreign buyers they’re going to pay a premium. We’re a country built on immigration; we want immigration, so the problem with a foreign buyer tax is that it catches people who are about to become new Canadians.”
British Columbia introduced a 15% non-resident tax in 2016, which has since been raised to 20%, and the Ontario government followed suit a year later by introducing its own 15% levy in the Greater Golden Horseshoe. Given that Toronto and Vancouver are the two most expensive cities in Canada, the federal government’s announcement last week has confounded some observers.
The taxes were introduced to stem surging housing prices in Vancouver and Toronto, but prices nevertheless rose and brought into question the efficacy of the levies.
“I followed it closely when Ontario introduced the tax as part of the Fair Housing Plan because I have so much invested in the condo business,” said Toronto-based Simeon Papailias, co-founder and managing partner of REC Canada. “They thought when they implemented it that the non-residents would make up something like 15% of buyers, but it turned out to be something trivial in the single digits. Toronto and Vancouver already have the tax, so this new one probably won’t bring the government very much additional revenue.”
Montreal, Canada’s second-largest city, is where the tax might be most impactful. The city’s real estate market has been on fire in recent years, as has its economy, and even with the city in the red zone through most of autumn because of rising COVID-19 infections, its real estate market had record sales last month. According to figures just released by the Quebec Professional Association of Real Estate Brokers, residential sales in the Montreal CMA increased by 32% year-over-year in November. New condominium listings also increased by 57% during the period, marking a 20-year high.
A recent regulatory regime governing short-term rentals in Montreal has resulted in a deluge of condo units entering the city’s long-term rental pool, raising supply considerably. In light of the additional supply, says Patrice Groleau, licensed partner at Engel & Völkers Montréal, the tax is all the more befuddling.
He added that Montreal, which has the most students per capita in North America, many of whom live in the downtown core’s condo rentals, isn’t awash with vacant, speculative units.
“Most of foreign people who buy in Montreal are immigrants who come to live here. They’re not just taking money out of their original country and investing it in Montreal; they’re looking to become primary residents within the next few years, so the government’s proposed tax won’t apply to many transactions here,” said Groleau.
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Written by Canadian Real Estate Wealth.
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Canadian Real Estate Wealth