Almost a year after Vancouver, ground zero of Canada’s housing bubble inflated with Chinese “hot money”, implemented a foreign buyer tax, and just weeks after Toronto’s housing bubble officially went nuts as prices soared 33% Y/Y, prompting economists such as David Rosenberg to demand a government intervention, Ontario’s Liberal government has finally cracked down on foreign buyers and according to CBC will join Vancouver in slapping a 15% tax on home purchases by non-resident foreigners, while expanding the province’s existing rent control system to cover all tenants.
The moves come after the price of the average home in the Greater Toronto Area jumped 33 per cent in a year, triggering warnings of a real estate bubble, as well as after reporting by CBC Toronto revealed landlords slapping massive rent increases on tenants.
The announcement, which is expected to be made Thursday morning, will include in addition to the foreign buyers tax and expanded rent control, the following measures:
- A rebate of development cost charges to encourage building of more rental housing.
- A standardized lease document for all tenants.
- A ban on flipping of pre-construction units by speculators.
- A review of the rules governing the conduct of real estate agents.
The full details will be unveiled at 9 a.m. today by Premier Kathleen Wynne, in Toronto’s neighbourhood of Liberty Village, along with Finance Minister Charles Sousa and Housing Minister Chris Ballard.
The highlight, however will be the 15% foreign buyer tax, which after being implemented in Vancouver halted the local housing bubble dead in its tracks and led to a sharp pullback in both home price appreciation and a torrid pace of transactions. Some more details:
Sources with knowledge of the announcement tell CBC News that Ontario will impose a 15 per cent tax on residential real estate purchases by anyone who is not a citizen or permanent resident, if they are not living in the province. Called the “Non-Resident Speculation Tax,” it is similar to the tax imposed in Metro Vancouver last year, but with a rebate for homebuyers who become resident within a limited time period after the purchase.
The tax will apply to purchases in the Greater Golden Horseshoe, an expanse of land that includes the Greater Toronto and Hamilton Area, as well as the surrounding region stretching from Peterborough through Barrie, Waterloo and the Niagara Peninsula to the U.S. border.
In addition to the tax aimed squarely at Chinese buyers, the Ontario government will bring all tenants under the province’s existing rent control system, ending the exemption that currently allows unlimited rent increases in units built after 1991. The change will mean annual rent increases for all tenants who stay in their rental housing will be limited to Ontario’s inflation-based guideline (which this year is set at 1.5 per cent), unless the landlord gets approval from the Landlord and Tenant Board.
The province will also introduce reforms making it harder for landlords to get approval for a higher-than-inflation rent hike. For instance, landlords who have yet to repair elevators after being ordered to do so will be unable to apply for such an increase. Ontario will also bring in a standardized lease, such as exists in Quebec, to stop landlords from putting illegal clauses in their contracts with tenants.
To make up for the expansion of rent control, CBC adds that the government will announce new incentives to developers for building dedicated rental accommodation targeted at the middle- and lower-income market. The key incentive will be an up-front provincial rebate of development cost charges. In addition, the government will free up more provincial land for building affordable housing, both for sale and for rental.
Additionally, the government will ban speculators from “assignment flipping” in the pre-construction housing market. The move is targeted at investors who put deposits on multiple units at pre-construction prices — typically in condominiums, but sometimes in new subdivisions — then sell the title for profit before the building is complete, a process known as assignment. Sousa has previously signaled his intent to target such investors, labelling them “property scalpers” who are driving up prices.
Finally, anyone who buys real estate in Ontario will have to reveal their citizenship and place of residence. The measure was promised by Sousa last November, but takes effect on Monday, along with a range of other disclosure requirements. Buyers will also be required to state whether the property is to be used as a primary residence or investment, whether the buyer is acting as a representative for the eventual owner, and to reveal the names behind any numbered company purchasing real estate.
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What this really means is that as two of China’s favorite targets of capital outflows shut their doors to more Chinese “investment”, the local oligarchs will simply have to find a new willing recipient. We expect that cities along the US West Coast – not to mention Warren Buffett, who as we reported earlier this week is now selling US houses to Chinese buyers – will be more than delighted to greet China’s trillions in capital outflows with open arms.