Is the foreign buyers tax actually working?

The Ontario Ministry of Finance released new data, which they say is evidence that the non-resident speculation tax - or foreign buyers tax as most people refer to it - has been successful so far.  

According to the province, 3.2% of the 66,434 real estate transactions in the Greater Golden Horseshoe (GGH) from May 27 to August 18, 2017 involved foreign buyers. This figure is down from 4.7% since the Fair Housing Plan was implemented.

In Toronto, foreign buyer speculation accounted for 5.6% of the real estate transactions, down from 7.2%.

“The measures that we introduced as a part of the Fair Housing Plan are working—we are seeing increased housing supply and evidence that more people are finding affordable homes,” says Charles Sousa, Minister of Finance. “Ontario continues to be a place that welcomes all new residents, drawn by its rising employment and strong economy.”

Back in April 2017 while the foreign buyers tax was being debated, we chatted with four industry experts about their concerns. Ben Myers, Senior VP, Market Research & Analytics, Fortress Real Developments, said that “a foreign buyers tax is like putting a Band-Aid on a stab wound. It would help, but it wouldn’t fundamentally address the problem, which in this case is a lack of supply.”

A drop from 4.7% to 3.2% is a 1.5% difference, and that’s for all of the GGH. So there were approximately 2,125 foreign buyer transactions, down from 3,122 - about 1,000 less. Does that mean there were 1,000 more homes for residents of the GGH to purchase? We’re not sure it’s that simple.

To get a clearer picture of this data, we got in touch with Ben Myers again. One thing he mentioned was that it is difficult to pinpoint whether or not the tax was actually the cause of the decrease in foreign buyer activity.  

“I think it is still too early to determine if the tax was a success or not. When introduced with 16 other measures, it would have been hard enough to isolate the impact,” Myers said in an email to Newinhomes.com. “The froth has certainly been taken out of the resale market, which is positive, but impossible to tell how much buyers and sellers were impacted by the foreign buyers tax or not.”

Myers also informed us that the percentage of transactions was determined with closings, so some sales may have actually occurred before the Fair Housing Plan was announced. He believes that the next data release will provide a clearer picture on the effectiveness of the foreign buyers tax.

It’s also important to note that the province didn’t release any data on how much foreign investors sold in this time period. “Many foreign owners will now hold on to their current properties because it is now more expensive to acquire new ones,” Myers explained. “So the share of new purchases may decline, but overall ownership by non-Canadians may stay the same because of less turnover.”

The data also doesn’t state how many of the foreign buyers are actually residents of Canada. Myers said that there are several international studies claiming that 50% of foreign buyers purchase for their primary residence, so they’re living here, contributing to the economy, and in the process of receiving citizenship.

Finally, we should be looking at what happened in Vancouver: “The rebound in the Vancouver housing market nine months after their foreign buyers tax shows that foreign capital was only a small part of the problem,” Myers said. “I expect GTA resale prices to be on the rise again by the end of the year. New home prices never dipped, and sales at new condominium apartment launches are as strong as ever, investors realize the market is still undersupplied.”

So, it does seem a bit too early to celebrate the success of the foreign buyers tax. It will take several more months to get a clear picture on positive or negative effects. In the meantime, it is still crucial for all levels of government and the real estate industry to be looking at what can be done about the low supply issue.