Finance

Ontario imposes tax on overseas buyers to rein in housing prices

Ontario imposes tax on overseas buyers to rein in housing prices

It applies to property in the Greater Golden Horseshoe area - one of North America's fastest growing regions, comprised of the Greater Toronto Area and surrounding municipalities. The new tax would be effective as of April 21, 2017.

Ontario will introduce a 15% tax on the purchase of any residential home bought by a non-resident or citizen.

Some economists were skeptical Thursday about the impact the new tax on foreign speculators would have on soaring house prices, noting that all three levels of governments have admitted they lack housing market data.

The region's housing market has seen prices jump more than 33% over a year, with the average detached house selling for $1.21-million dollars.

Do you trust the Ontario government can avoid unintended consequences in its housing intervention?

"In some ways, we have to realise that this is a good problem to have", Wynne said. "And when the rising cost of housing is making more and more people insecure about their future, and about their quality of life in Ontario, we know we have to act".

A spokesperson for Minister of Housing and Poverty Reduction Chris Ballard said the rules do not apply to rent increase notices given before Thursday April 20.

BMO had concerns about rent control, noting that the change could slow the construction of rental units.

Tenants groups welcomed the move.

The province is also considering to bring in a standardized lease, similar to that exists in Quebec, to stop landlords from putting illegal clauses in their contracts with tenants.

"These are a measured set of responses to ease the enormous pressure that people are under right now", said Ontario Premier Kathleen Wynne at a news conference, where she relayed stories of families losing multiple bidding wars for houses and finding themselves priced out of the market. In addition to imposing levies on empty homes, options to cool the market could include taxing foreign buyers, steps to boost supply, and rent control measures.

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Queen's Park also has plans to review the real estate industry, checking on practices such as double ending where a realtor represents the buyers and the seller.

These forthcoming measures were among 16 the province unveiled today as Ontario's Fair Housing Plan.

Neither of Ontario's opposition parties objected to any of the government's proposed measures.

"It's a great start", she said, but called rent control only "one piece of the pie".

"Everyone is anxious: what if this is the measure that crashes the market?" said John Andrew, director of Queen's University Real Estate Roundtable.

The City of Toronto and the federal government are also mulling over options to cool the housing market.

Currently, only rental units before November 1991 have been subject to rent control, which limits how much landlords can increase rent from year to year.

It will also introduce a C$125mn ($93mn) five-year programme to encourage construction of new apartments.

- More flexibility for municipalities when it comes to using property tax tools to encourage development.

"It will be a "made-in-Ontario" solution recognizing all of the work and information that we've obtained in the last number of months", he said.

The government will also work to better understand and tackle practices that may be contributing to tax avoidance and excessive speculation in the housing market, such as "paper flipping" - a practice that includes entering into a contractual agreement to buy a residential unit and assigning it to another person prior to closing.


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