Ontario Finally Cracks Down On Toronto Housing Bubble: Launches 15% Foreign Buyer Tax

Tyler Durden's picture

Almost a year after Vancouver, ground zero of Canada's housing bubble inflated with Chinese "hot money", implemented a foreign buyer tax, and just weeks after Toronto's housing bubble officially went nuts as prices soared 33% Y/Y, prompting economists such as David Rosenberg to demand a government intervention, Ontario's Liberal government has finally cracked down on foreign buyers and according to CBC will join Vancouver in slapping a 15% tax on home purchases by non-resident foreigners, while expanding the province's existing rent control system to cover all tenants.

The moves come after the price of the average home in the Greater Toronto Area jumped 33 per cent in a year, triggering warnings of a real estate bubble, as well as after reporting by CBC Toronto revealed landlords slapping massive rent increases on tenants.   

The announcement, which is expected to be made Thursday morning, will include in addition to the foreign buyers tax and expanded rent control, the following measures:

  •     A rebate of development cost charges to encourage building of more rental housing.
  •     A standardized lease document for all tenants.
  •     A ban on flipping of pre-construction units by speculators.
  •     A review of the rules governing the conduct of real estate agents.

The full details will be unveiled at 9 a.m. today by Premier Kathleen Wynne, in Toronto's neighbourhood of Liberty Village, along with Finance Minister Charles Sousa and Housing Minister Chris Ballard.

The highlight, however will be the 15% foreign buyer tax, which after being implemented in Vancouver halted the local housing bubble dead in its tracks and led to a sharp pullback in both home price appreciation and a torrid pace of transactions. Some more details:

Sources with knowledge of the announcement tell CBC News that Ontario will impose a 15 per cent tax on residential real estate purchases by anyone who is not a citizen or permanent resident, if they are not living in the province. Called the "Non-Resident Speculation Tax," it is similar to the tax imposed in Metro Vancouver last year, but with a rebate for homebuyers who become resident within a limited time period after the purchase. 

 

The tax will apply to purchases in the Greater Golden Horseshoe, an expanse of land that includes the Greater Toronto and Hamilton Area, as well as the surrounding region stretching from Peterborough through Barrie, Waterloo and the Niagara Peninsula to the U.S. border.

In addition to the tax aimed squarely at Chinese buyers, the Ontario government will bring all tenants under the province's existing rent control system, ending the exemption that currently allows unlimited rent increases in units built after 1991. The change will mean annual rent increases for all tenants who stay in their rental housing will be limited to Ontario's inflation-based guideline (which this year is set at 1.5 per cent), unless the landlord gets approval from the Landlord and Tenant Board.

The province will also introduce reforms making it harder for landlords to get approval for a higher-than-inflation rent hike. For instance, landlords who have yet to repair elevators after being ordered to do so will be unable to apply for such an increase. Ontario will also bring in a standardized lease, such as exists in Quebec, to stop landlords from putting illegal clauses in their contracts with tenants.   

To make up for the expansion of rent control, CBC adds that the government will announce new incentives to developers for building dedicated rental accommodation targeted at the middle- and lower-income market. The key incentive will be an up-front provincial rebate of development cost charges. In addition, the government will free up more provincial land for building affordable housing, both for sale and for rental.

Additionally, the government will ban speculators from "assignment flipping" in the pre-construction housing market. The move is targeted at investors who put deposits on multiple units at pre-construction prices — typically in condominiums, but sometimes in new subdivisions — then sell the title for profit before the building is complete, a process known as assignment. Sousa has previously signaled his intent to target such investors, labelling them "property scalpers" who are driving up prices. 

Finally, anyone who buys real estate in Ontario will have to reveal their citizenship and place of residence. The measure was promised by Sousa last November, but takes effect on Monday, along with a range of other disclosure requirements. Buyers will also be required to state whether the property is to be used as a primary residence or investment, whether the buyer is acting as a representative for the eventual owner, and to reveal the names behind any numbered company purchasing real estate.

* * *

What this really means is that as two of China's favorite targets of capital outflows shut their doors to more Chinese "investment", the local oligarchs will simply have to find a new willing recipient. We expect that cities along the US West Coast - not to mention Warren Buffett, who as we reported earlier this week is now selling US houses to Chinese buyers - will be more than delighted to greet China's trillions in capital outflows with open arms.

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Seasmoke's picture

My Chinese laundering friends. Come on down to New Jersey. 

Cognitive Dissonance's picture

Careful what you wish for. You might just get it...and then some.

SafelyGraze's picture

the hot-money must flow

if not into toronto, new jersey

if not into new jersey, kansas

if not into kansas, pizza

the hot-money must flow

Never One Roach's picture

I'm bad at maff, what's 15% of $30 million embezzled Loot?

robertocarlos's picture

Not enough to pay Mike Babcock.

Déjà view's picture

Hurry up...Calgary 'Stampede' coming...

asteroids's picture

Interest rates are too low and the Canadian Banks have authority to print infinite amounts of money. That's why housing is so high. Raise interest rates to 5% and triple the tax bill in Toronto. Housing would implode overnight, problem solved. Wynn is a useless lesbian.

The Real Tony's picture

The root cause is the Chinese both local and foreign ones. If you look at any other city in Canada without Chinks you'll see property values are flat to down since march 2012. So like I said interest rates aren't the cause but it did let a bunch of stupid millennials into the market who shouldn't be in it.

Never One Roach's picture

Calgary now has a larger population of moslims then Baghdaddy and Islamabaddy. Lucky for Canadians they are mostly business minded and don't ban miniskirt, etc like the fanatic moslim mayor in London.

Pinto Currency's picture

It's not foreign buyers, it's the Bank of Canada driving the bubble.

Anteater's picture

I was in real estate development in pre-2008 on the West Coast trying desperately to schedule phases in and cost-control, but it was like the Wild West, every time I did a check bid on a subcontractor they would tell me to FOAD, then Higher would call down screaming, 'Just do your job!', meaning sign the submittals to the bank APPROVED FOR PAYMENT. Then, one morning, there in 2008, the office paper shredder had a waiting line, and the COO was handing out pink slips. POOF! Like that doomed Alaska Airlines flight, instantly inverted in an underwater flat-spin death-spiral.

It's a' comin'!

Sick Monkey's picture

Interest rates effect everything my freind. From where you poop to who you have babies with. If the rates were where they should be and the idiots in power stopped selling the nations sovereignty to a host of private investors coming from who knows where your beer would be half price and your neighbours would not have to sell crack to feed their children. Ok so you wouldn't be able to make 10% annum on your house and primary school children wouldn't have Visa gold cards but trust me when I say having run a small business for 40 years " low interest rates are the Kamikaze vehicle to a dying culture hyjacked by very greedy social engineers destined to be hung in Times Square."

The concept of running the planet using zero collateral via FIAT would have sent nations to war prior to the seventies. Now it is a religion. That's how powerful your masters are. At no time in human history going back to Babylon when they used shinny stones to trade a gallon of goat's milk for a bushell of corn has anyone even contemplated 0% interest. Sorry about the run on sentences. French Canadian.   

Silver Bug's picture

You mean they are cracking down on Chinese money laundering. This is all that is going on in Canadian major cities atm. Housing is far beyond what the typical middle class household can afford now. Its insanity.

 

http://jimrickards.blogspot.com/2017/04/james-rickards-china-disaster-to...

FatTony7915726's picture

Chickity China the Chinese Chicken!

cossack55's picture

You have a drumstick and your brain stops tickin'

FatTony7915726's picture

Laundering money and laundry cleaning is a Chinaman's expertise, oh yeah let's not forget gambling too!

Evil Peanut's picture

How is that a deterent to anyone with money to burn?

Houses Depreciate's picture

Does one usually burn borrowed money?

thetruthhurts's picture

Naw....Come to San Antonio!  

Wee have very best prices! Yes! We luv you long time Joe!

Come here! Wee luv you!

jamesmmu's picture
Toronto’s Increasingly Unaffordable Real Estate Market Is Going To Impact Other Canadian Cities As Well; Here Is How.

http://investmentwatchblog.com/torontos-increasingly-unaffordable-real-e...

robertocarlos's picture

Did not read but it is good news as in when Toronto and Vancouver blow up so will the markets in Hicksville Canada.

robertocarlos's picture

Read it. Fuck the CREA. Rates need to go up.

skbull44's picture

Already has. My hometown of London (2 hours west of Toronto) has seen a significant influx of former Torontians who took advantage of the housing price bubble, liquidated their over-priced Toronto homes, and began bidding wars in London, pushing up the prices...

The Real Tony's picture

Ottawa went nowhere the same in Quebec. Ottawa is still almost all white and too far from Toronto, sorry.

walküre's picture

...almost all white you say? sounds like heaven.

does such a thing even exist in North America?

vealparm's picture

The mountain west(Idaho, Montana, Wyoming and Utah).....just stay away from the big cities and refugee centers.

Megaton Jim's picture

I thought all those squinty eyes were busy buying up California real estate?!?

A. Boaty's picture

All your West Coast is belong to us.

TheSilentMajority's picture

Too little, too late eh.

Lots of silly loopholes that will be easily exploited to the max eh.

Prices in Vancouverstan are still rising, albeit at a slower pace eh. Probably continue to attract the foreign roaches in Torontostan as well eh.

Chinese money-launderers are also still openly welcome in victoria and most pther parts of the world eh.

northern vigor's picture

Of course the Liberal government would never have thought of the tax being a new source of revenue...its all for the children. 

Ghordius's picture

bah. those are amateurs that don't even know how to handle tax power

the proper "statist" way to do such a thing is to raise an annual tax on all residential housing, and then give a rebate of 95% of it on all those who have the right nationality/residence permit/whatever you wanted to penalize

a sales tax? it's like closing the barn doors after the cows have fled

it reminds me of the British "Home Office", who still don't manage to have any proper statistics on foreigners in the UK, and now have a scheme of forcing businesses to check on the identity and permits of their employees. as if the "submerged" economy would comply to such things

it's cute, this "I want to be a statist/nationalist, but I don't really know what I am doing, but who cares, as long as I look the part"

back to basics's picture

Toronto is not Vancouver.

Yes, some Chinese money was diverted to Toronto but real estate prices in Toronto have climbed for many other reasons: local speculators, local money looking for hard assets (avoid holding CDN $s since the Canadian government and Bank of Canada have no other plan for the economy other than treating the Canadian dollar as a rag and devalue, lack of room to expand in the core where everyone wants to live, one of the worse commuter traffic situations in North America (people don't want to invest 2-4 hours everyday in a car going back and forth to work). 

Real estate prices in Toronto will come down from the insane heights they reached but they won't crash as some expect. Far from it.

Houses Depreciate's picture

Never characterize falling prices to dramatically lower and more affordable levels as "crash".

 

Remember..... Nothing accelerates the economy, creates jobs and  raises the standard of living like falling prices to dramatically lower and more affordable levels. Nothing.

back to basics's picture

Define affordable. Because if you think Toronto real estate is heading "dramatically lower" back to "nornal" (so many times annual salary; pick a number that suits you), then you are in for a shock. As for your other nonsense that you shouted with so much emphasis, nothing accelerates an economy better than the creation of well paying jobs. Nothing.

Houses Depreciate's picture

Do you really believe wages will magically  triple or quadruple to meet grossly inflated prices?

 

Of course not my friend. 

 

Housing prices will continued falling to dramatically lower and more affordable levels meeting wages right where they are.

 

It's time for you to get back to basics. *Read.Study.Learn*

 

 

Xena fobe's picture

The standard of living will fall to accommodate lower wages and high housing costs.  Either several generations under one roof or live in a dog house size apartment for half your salary in a bad neighborhood.

Houses Depreciate's picture

And collapsing demand to record lows for eternity? Nonsense.

 

Prices will continue falling to dramatically lower and more affordable levels until the market accepts the price.

 

It's the way the world works my friend. It's the way the world works.

back to basics's picture

Yeah, wait for it, like everyone on here has been waiting for the markets to crash since 2009. If you have two functioning brain cells, which is very debatable based on your nonsensical posts, you'll wake up some day and realize that you've been priced out. In the meantime, keep paying rent waiting for those home prices to fall "dramatically lower" .

PMSL

Houses Depreciate's picture

Of course my good friend. You're underwater like all DebtDonkeys are.

The Real Tony's picture

Condo prices in Toronto will drop 25 percent overnight that I can assure you. Condo and townhouse prices in Toronto will likely fall about 35 percent or more this year to the end of this December.

rpboxster's picture

So...create a local LLC or holding company, then buy it.

Sonny Brakes's picture

People will game any system over time. The Chinese/foreigners will simply buy property outside the established perimeter and end up buying large tracts of the boreal forest. Or maybe they'll buy Hydro One or Ontario Power Generation.

Anybody's picture

I thought they already did. Maybe it's the Brits and the French along with the U.S. that own OPG.

Tugg McFancy's picture

You can buy a very livable house in the maritimes for barely 6 figures. Anyone with half a brain would have collected the 7 figure tax free windfall on their soulless shitbox and moved to Nova Scotia and retired.

Watch this crater on nothing more than sentiment now.

zuuma's picture

True enough.

But unless you're into kayaking, knitting, & reading, there's not a whole lot going on in Wallace or Pugwash or wherever in NS

MAybe Halifax has some nightlife, but now you're talking higher prices again.

Sonny Brakes's picture

If those things are important then living in a small town isn't going to be suitable. I've lived in Toronto and as a person of meager means, I couldn't enjoy the city. Upon reflection, I chose to leave and return and live in my small northern Ontario hometown. I enjoy the peace and quiet. Big cities are too expensive and noisy for my liking.

The Real Tony's picture

Ironcially it was the Maritimes that fell in price from a very low level the past few years. Alberta prices are down anywhere from 10 percent to 60 percent. For McMurray is down about 60 percent and might be turned into a small retirement community. Edmonton may also become a permanenet retirement community.