GTA – By Steve Ezeude
“If you’re not going to put money in real estate, where else?” — Tamir Sapir, business mogul
The sleepless nights suffered by politicians and law makers over the escalating housing prices in the Greater Toronto Area in the last two years have yielded some tangible fruits with the Ontario Government’s announced plans to address the price hike madness. Residents felt the pinch of the high cost having seen prices rise by 33% in Toronto, 40% in Barrie and 30% in Oshawa from what they were a year before.
Some of the reasons given by Government for coming up with the measure are unaffordability of homes by average residents, the unsustainability of the trend, increase in vacant homes, speculation by local and international buyers, frustrating bidding wars, etc.
The highlights of the measures to cool the housing market are:
- 15% Non-Resident Speculation Tax (NRST) – which became effective April 21, 2017, and applies to non-citizens, nonpermanent residents, and foreign corporations
- vacant home property tax/legislation
- rent control on all private rental units in Ontario
- the introduction of legislation to strengthen the Residential Tenancies Act to protect tenants and ensure predictability of Landlords on rent increment. Standard lease to be in place
- utilization of surplus provincial land assets for housing development
- developers to build a more new purpose built rental housing
- targeted $125million, five-year program for construction of new apartment buildings with rebate on development charges
- imposition of higher taxes on vacant lands that have been approved for development
- assisting developers in addressing barriers specific to housing development projects
- tackling tax avoidance and excessive speculation in the housing market
- review of real estate agents rules on fair customers representation in real estate transactions
- education of customers on multiple representations
- comprehensive reporting requirements on taxes, income and sales taxes
- ensuring that elevators in buildings are more reliable
- establishing appropriate unit sizes in higher density residential buildings for a diverse range of household sizes and income.
Will these measures do anything to cool the real estate market? Different opinions are trending out there but the impact of this announcement will likely be felt in a couple of months to come. Some think that prices will be tumbling down while others say that prices will still go up. From the point of view of Government, this plan will lead to predictable housing and the process will be fair as well as ensure more affordable housing.
According to the Government, it wants to see investment in multi-unit properties as opposed to buying detached homes and leaving them uninhabited for speculative purposes. In his statement, Charles Sousa, the Ontario Finance Minister, stated that ‘Government does not want to over correct the market but wants stability. It happened in BC. When the same taxes were introduced there, it did slow prices down but it has come back up now but on a seemingly stabilized position’.
The proposal to work with developers to build more purpose built rental housing appeals to me greatly. While looking forward to the Government’s unveiling of this plan, I was very critical of any plan that would not address burgeoning shortage of housing stock. I am really impressed that $125million will be earmarked for this mass-housing over the next five years and me posit that it will go a large extent in cushioning the effect of housing shortage and at-least stabilize the prices.
The rent control is a welcome development which the rental public are very happy about. No landlord can increase rent beyond the inflation rate. A few weeks ago rent in the Toronto area rose by 100%.
I am not impressed about the NRST and targeting of flippers. I do not see increasing taxes for flippers as a deterrent. As long as one does flipping as a passive venture, that person does not really care about how high the tax is as long as he breaks even and there is return afterward. The NRST although applicable to foreigners, foreigners can set up corporations here and invest in the real estate market and this tax will not be applicable to them. Besides, there are speculations that this tax will not have a significant impact on the market as foreign investors constitute only about 4% of the investors.
One discussion I had with a fellow Realtor, she noted that this measure won’t do much and that it will take about 10 days or so and things will be back to normal. One thing she said that hit me was if someone was to live a particular neighbourhood, not the price will deter him. Impressive, isn’t it? So, let’s keep investing. Regardless, the market forces will prevail in determining the price points of the housing prices. Real estate is still the way to go.