Ratings agency sees Toronto home price slowdown

• Massive gains in house prices across the Greater Toronto Area could be coming to an end with a correction even in the cards, says a leading U. S. ratings agency.

Fitch Ratings believes the province’s 16- point plan to create affordability in the Greater Golden Horseshoe — an area home to nine million people and that wraps around the GTA in the southern end of the province — may derail the market.

“Ontario’s proposed legislation aimed at tempering home prices in the greater Toronto area should help slow price growth and possibly lead to a price correction,” the agency said in a note Friday. “Toronto home prices are up more than 40 per cent in the past three years, far outpacing the supporting economic fundamentals in the area.”

The provincial government announced new measures on April 20 to cool the market after the Toronto Real Estate Board reported average resale prices in the GTA rose 33 per cent in March from a year ago. The average new detached home is now selling for about $ 1.78 million, climbing 70 per cent over the last year. Key measures in the plan are a 15 per cent nonresident speculation tax, a 2.5 per cent cap per year on rent increases that will be tied to inflation and greater flexibility for municipalities to use property taxes to influence the housing market.

“The tax on foreign buyers, coupled with rent controls and other proposed measures, if passed, will likely have a more meaningful impact on home price growth and sales activity than in Vancouver, where a foreign- buyer tax was implemented last August without similar rent controls,” Fitch said. “Vancouver home prices dropped about three per cent after the tax was introduced. However, prices started to rebound in January 2017 and are now close to their peak.”

The ratings agency believes investor properties and speculators in the GTA’s condo market would be most affected by the changes.

“The proposed rent controls could dampen price growth in the condo market if the rent investors can charge tenants is limited. Investors who are highly leveraged may be forced to sell, which could begin downward momen- tum that leads speculators to follow suit. Further, if all measures are passed, municipalities will have the power to introduce a tax on vacant units to encourage sales or rentals of unoccupied units, which may discourage speculators from holding onto vacant properties,” Fitch said.

Citing numbers from the Ontario Ministry of Finance and MPAC Property Assessment, Fitch said the number of borrowers who own more than one residential property in the Greater Toronto Area and Hamilton grew by roughly 30 per cent between 2014 and 2016.

“The growth in multiple owned units can be attributed to investors buying units for rental purposes due to the limited supply of rental stock and uncurbed rental increases. This in turn may be driving price and demand momentum from speculators buying properties in anticipation of high returns. Although the limited supply of rentals appears to be a valid supporting factor, the extent of the price increases does not appear to be supported by growth trends in population, income and employment.”