It’s no public secret that earlier this year, the housing markets in two of Canada’s largest cities, Vancouver and Toronto, were piping hot. However, a wave of cool air has settled over the west coast metropolis of Vancouver due to the city’s recently implemented foreign buyer tax.
The Purpose of the Foreign Buyer Tax
Passed in July by the Liberal party of British Columbia, the foreign buyer tax works by requiring foreign investors, who make up 10 percent of property sales in Vancouver, to pay a 15 percent increase on any property transfer taxes.
The reason for the tax being employed is simple. Vancouver’s government saw that the influx of foreign buyers in the real estate market was negatively affecting Canadian residents abilities to purchase their own home due to the competition. Plus, while 15 percent may not sound staggering, the average Vancouver house costs $663,411. Therefore, if foreign investors were looking to purchase an average priced home, their transfer tax bill would chalk up to a hefty $99,512.
How it is Affecting Toronto Real Estate
Additionally, according to a variety of industry experts, some foreign money that would have once gone to the Vancouver market is redirecting to Toronto due to the tax.
While all of these changes are occurring for buyers in Vancouver, the pacific city isn’t the only one seeing fluctuations attributed to the foreign buyers tax – Toronto has been affected too. Ontario’s capital has experienced an increase in sales of single-family homes that are worth over $1-million. In fact, the month of August went on to see a 0.3 percent increase in value, $1.21-million, on Toronto homes.
According to Sotheby’s International Realty Canada, the Greater Toronto Areas sales rates on $1-million single-family properties for the months of July and August increased 83 percent from the previous years total of 3,026.
The city of Toronto, on the other hand, saw 959 single-family homes that sold for over $1-million in July and August, a 55.2 percent increase in sales from the same months in 2015.
In Vancouver, however, sales declined a staggering 44.3 percent.
Luxury Real Estate Market Fluctuations
While homes worth over $1-million are technically considered luxury real estate, in booming cities such as Vancouver and Toronto, $1-million can barely help a buyer a purchase a single-family detached home. Therefore, homes valued at over $4-million are more likely to be considered archetypes of the typical house people imagine when they envision the phrase “luxury home”.
The foreign buyers tax has actually spurred a spike in sales of Toronto homes worth over $4-million. It was found that in the GTAs luxury real estate segment, 47 single-family homes valued at over $4-million or higher were sold in July and August, a dramatic increase of 74.1 percent compared to the same time last year. In Vancouver, however, luxury home sales decreased 37.9 percent in the last year.
In a recent statement, Brad Henderson, the president and CEO of Sotheby’s International Realty Canada said that while the Vancouver real estate market is going to slow down, Toronto’s is “set to accelerate.” Henderson additionally proclaimed that:
“The two cities that have been at the forefront of the Canadian real estate market have been Toronto and Vancouver, and we are going to see a clear divergence between their performance this fall,”
Buyers looking to enter the real estate market in Toronto or Vancouver need not be afraid. Contrary to some ill-informed beliefs, both markets are sustainable and stable. While many first time buyers have their eyes set on purchasing a single-family detached home, others prefer to go the more affordable route of condo living. Condos provide a budget friendly option for many first time buyers living in cities where the market is simply too competitive for the average person to comfortably purchase a single-family house.
The recent changes in Vancouver have already begun sending ripple effects in the direction of Toronto’s real estate market. If you are looking to purchase a condo in the GTA but don’t know where to begin looking, check out ohm.com for stunning condo communities that you’ll be inspired to one day call home.