Ontario wary of taxing foreign buyers

Real estate guru warns following B.C.’s measure could harm rural markets

Ontario Finance Minister Charles Sousa says he will cast a close eye on British Columbia’s move to tax foreign homebuyers in a bid to keep housing prices affordable in the scorching Vancouver real estate market.

The B.C. government announced Monday it will begin charging 15 per cent on home transactions involving foreign buyers as it faces mounting concerns about citizens being priced out of the country’s hottest market.

BMO chief economist Douglas Porter has urged the Ontario government to follow B.C.’s lead, given that single detached houses in the Greater Toronto Area have jumped almost 20 per cent year over year.

Sousa welcomed B.C.’s move. But Ontario needs to be cautious about how a similar measure in the Toronto area could spill over into the rest of the province.

“We have to be cognizant of the impacts of those decisions,” he told reporters on Tuesday.

That caution is well founded, said Dianne Usher, senior vice-president of the Johnston and Daniel division of Royal LePage. “Toronto and Vancouver are magnets for foreign acquisition. To pull that away could have an impact across all sectors,” she warned.

“Any tax is going to eliminate some of the real estate activity which is a major, major contribution to the overall economy. What might be good for a major urban environment could have disastrous effects for smaller communities,” she said.

Usher cited Hamilton, where real estate is just gaining strength after years of economic struggle. She also noted that an Ontario tax could discourage Americans from investing in cottages around Toronto.

“I would rather see foreign money coming into our country. If Vancouver’s not welcoming it any longer, bring them to other parts . . . that might be suffering some economic challenges, for example the east coast of Canada or Alberta,” she said.

Foreign investment isn’t a problem in Ontario, economist Frank Clayton said. In fact, those investors often purchase units that go into the rental market.

But Ontario needs to do something to reduce the “euphoria” around housing that sees people jumping in just because they fear being priced out of home ownership, he said.

It’s a “massive” tax that is probably being introduced too late to offer significant relief to Vancouver home- buyers, said David Fleming of Bosley Real Estate, who doubts Ontario will take a similar measure soon.

“If — and it’s a big if — all that foreign demand came to Toronto and our market continued to spiral, you might see it,” he said.

But, he added, “The savviest and the smartest will still find their way around the tax. People are going to look for the loophole. It’s not going to take long for foreigners to set up Canadian companies and hold the property in those names . . .”

It’s also naive to assume that any investment driven out of Vancouver by the new tax would necessarily land in Ontario. Some of it might but, “It could also find a place in New York, Los Angeles, San Francisco, Paris or London,” he said.

The CEO of online mortgage aggregator RateHub called the B.C. tax a “good policy move,” by a government that is bound to protect affordability for citizens.

It can cool the market without pushing those citizens out.

“Going this drastic on something like down payment (requirements) really has the potential for it to take longer for first-time home buyers to save that down payment and that may not be what we want,” Alyssa Furtado said.

Ontario will have the advantage of being able to see if the tax pushes investment outside Vancouver to secondary B.C. markets like Kelowna and Victoria, she said.

“The savviest and the smartest will still find their way around the tax.” DAVID FLEMING BOSLEY REAL ESTATE