Foreign Buyers Non Res Real Estate Taxes. -Better Dwelling. December 2020

By: The Battle Real Estate Team

Foreign Buyers Non Res Real Estate Taxes. -Better Dwelling. December 2020

Tags: Taxes, Foreign Buyers, Real Estate

Canada’s getting serious about housing supply… or at least trying to make you think it is. The Government of Canada (GoC) made its economic statement yesterday, including a plan to tax non-resident homeownership. The tax, which may be rolled out within the next year, sounds aggressive. However, two of the country’s most populated regions already have non-resident taxes. A few markets may see a temporary hit, but the tax likely just puts domestic speculators on higher ground.

Taxing Foreign Buyers At The National Level

The economic statement includes implementing a tax on non-resident speculative use of real estate. The tax in theory hits foreign buyers looking to squat on real estate with a penalty to discourage speculation. The speech made it seem like it was being considered, but isn’t a done deal. However, the actual statement from the GoC made it seem like a more concrete plan. In fact, the statement reads they “… will take steps over the coming year to implement a national, tax-based measure” to target residential real estate bought by non-resident, non-Canadians.

New Condo Apartments To See The Biggest Impact

Non-resident taxes deter buying of all segments, but condo apartments are the target. Existing homes don’t have the overseas marketing pitch new developments do. New developments are consistently sold in other countries as investments, not lifestyle purchases. This has resulted in a concentration of new housing supply bought as an investment or a store of wealth. It’s like Bitcoin, but more anonymous (since there’s no legal trail of beneficial ownership).

How Does This Impact Toronto And Vancouver?

The impact on Canada’s most expensive markets would technically be minimal. They already have a foreign buyer tax. In BC, non-resident buyers are hit with a 20% tax on the fair market value of real estate bought. The tax applies to Metro Vancouver, Fraser Valley, Okanagan, Nanaimo, and Capital Regional District. In other words, buyers in the population dense parts of Southern BC are already deterred. 

Ontario also has the similar non-resident speculation tax (NRST) for Greater Toronto. Non-permanent residents, foreign citizens, foreign companies, or taxable trusts are hit with the 15% NRST upon acquisition of real estate. The tax applies to the Greater Golden Horseshoe Region (GGH), which is basically Toronto and all of its interrelated economies in Southern Ontario. One big difference between this tax and the one in BC, is BC’s tax also has a recurring component. Ontario does not. 

Over 1 In 10 New Toronto And Vancouver Condos Owned By Foreign Buyers

Non-resident buying in Toronto and Vancouver highlights how new housing stock has been used for speculation. In Toronto, it’s estimated that 2.6% of housing stock was owned by non-resident homeowners in 2019. That’s already high, but most of it is concentrated in condos built between 2016 and 2019. Non-resident ownerships in this segment represented 7.7% of the newly built condo supply. All of those towers that have been shooting up? Almost 1 in 10 units have been going to non-resident owners. 

Toronto Non-Resident Condo Ownership By Period Of Construction

The percent of Toronto condo apartments with non-resident ownership, by period of condo construction.
20182019024681960 or earlier1961 to 19701971 to 19801981 to 19901991 to 20002001 to 20052006 to 20102011 to 20152016 to 2019Percent
Period 2018 2019
1960 or earlier 4.4 4.3
1961 to 1970 2.9 2.7
1971 to 1980 3.1 2.9
1981 to 1990 5.2 4.9
1991 to 2000 6.6 6.1
2001 to 2005 7.5 7.2
2006 to 2010 6.5 6.7
2011 to 2015 6.6 6.9
2016 to 2019 7.3 7.7
 
Source: Stat Can, Better Dwelling.

Greater Vancouver has an even bigger market of non-resident owners, despite recurring taxes. About 4.3% of total housing stock in the region was owned by non-resident buyers in 2019. Breaking down condo apartments built between 2016 to 2019, it jumps to 13.6% for the segment. That’s just over 1 in 7 units that went to non-resident buyers. Note, despite the taxes – the rate of non-resident ownership is still increasing.

Vancouver Non-Resident Condo Ownership By Period Of Construction

The percent of Vancouver condo apartments with non-resident ownership, by period of condo construction.
20182019024681012141960 or earlier1961 to 19701971 to 19801981 to 19901991 to 20002001 to 20052006 to 20102011 to 20152016 to 2019Percent
Period 2018 2019
1960 or earlier 8 7.6
1961 to 1970 3.1 3.3
1971 to 1980 3.8 3.7
1981 to 1990 4.1 4.2
1991 to 2000 6.1 5.9
2001 to 2005 8.6 8.5
2006 to 2010 8.4 8.4
2011 to 2015 9.8 9.7
2016 to 2019 12.9 13.6
 
Source: Stat Can, Better Dwelling.

Montreal And Halifax Likely To See Biggest Impact

Two markets that have been leading price growth lately might be the most impacted by a new tax. Excluding regions already subject to a foreign buyer tax, Montreal and Halifax had relatively high rates of foreign ownership at last study. The CMHC estimates 1.4% of Montreal’s condo apartment stock was non-resident owned in 2018. Halifax saw 1.1% of its condo supply in 2018 owned by non-residents. This would make Montreal the third largest non-resident market in Canada, and Halifax the fifth. 

Canadian Non-Resident Condo Ownership Rate

The percent of total condo apartment supply owned by non-residents..
2016201720180.00.51.01.52.02.5TorontoVancouverMontrealVictoriaHalifaxGatineauCalgaryOttawaHamiltonKitchenerQuebecKelownaLondonWinnipegEdmontonSaskatoonReginaPercent
Region 2016 2017 2018
Toronto 2.3 2.5 2.5
Vancouver 2.2 2.2 1.8
Montreal 1.1 1.7 1.4
Victoria 0.9 1.1 1.2
Halifax 1.2 1.2 1.1
Gatineau 0.6 1.1 0.7
Calgary 0.9 0.9 0.6
Ottawa 0.6 0.7 0.6
Hamilton 0.5 0.3 0.5
Kitchener 0.4 0.7 0.5
Quebec 0.5 0.5 0.5
Kelowna 0.3 0.6 0.4
London 0.8 0.4 0.4
Winnipeg 0.3 0.5 0.4
Edmonton 0.3 0.3 0.3
Saskatoon 0.2 0.4 0.2
Regina 0.2 0 0.1
 
Source: Stat Can, Better Dwelling.

A national foreign buyer tax likely makes little difference in BC and Ontario. Both of the provinces have non-resident taxes to discourage speculation. Markets like Montreal and Halifax are likely to see at least a short-term impact. However, the tax is just one tool, and has little impact when paired with policies designed to inflate home prices.

When paired with cheap money and other demand inducement schemes to push prices higher, the tax is just optics. There’s more than enough domestic speculators to fill the gap, with enough incentive. The measure provides the perception of doing something, but accomplishing very little. The opportunity is still wide open for domestic speculators, who now have a tactical advantage.

 

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