In April 2017, the Ontario Provincial Government performed yet another flip-flop move. Just a few months back, they claimed that they will not do anything about the high cost of housing in Toronto and will not implement any sort of “Foreign Buyers tax” like Vancouver. Of course, they did a 180 degree turn as predicted by this writer and others.
The Land Transfer Tax brought in a huge billion dollars windfall over the last two years as the housing prices in Toronto went through the roof. Why are they trying to “cool off” the market and want to bring “affordable” housing back to new buyers? Simply put, the election is one year away and they were lagging behind at the public polls. Therefore, a whole new package of goodies was handed out to the public as the housing issue is the second hottest topic after the expensive Hydro bills.
The new housing rules will take a while to get fulling implemented and so it is an excellent item to bring forward as a distraction to the Hydro Bill reductions which was a very unpopular “fix” with expensive payments in future.
I recently gave a presentation on the housing rules to a Chinese cultural organization and realized that the audience did not get all the facts. They say “the devil is in the details” and a lot of these details are still not finalized but we can see what they may turn out based on the outline released.
Amazingly, the new rules had an immediate impact on the housing market. With the addition listings flooding the market which is partly seasonal and partly due to a fear of the new rules, the buyers also adopted a “wait and see” position. These resulted in a “cool down” of the market. If the sales do not pick up by middle of July to let the buyers deal with the start of schools in September, the market can go into a major “adjustment” or even a tail-spin with disastrous results for many.
I will explain these new housing rules below:
Non-resident speculation tax (NRST)
Effective April 21, this new tax covers the Greater Golden Horseshoe areas of Ontario with Toronto as its centre. This includes many large cities from Niagara Falls to Kitchener/Waterloo to Peterborough.
Foreign Buyers tax applies to those who aren’t citizens or permanent residents, as well as foreign companies. The NRST will also not apply to transfers of multi-residential rental apartment buildings, agricultural land or commercial/industrial land.
It will be reimbursed to buyers who become permanent residents within four years of a sale, and won’t apply to international students enrolled full-time for at least two years or someone who has been legally working in Ontario for at least one year. To qualify for a rebate, the property must also be considered someone’s principal residence.
Toronto is not Vancouver and the “Foreign buyers” conditions are no where near those experienced by the latter. Since no deadline was set and the tax enforcement is immediate, we cannot see the “rush” to close the deals before a deadline to avoid the taxes. This will not allow us to gauge and measure the actual impact in Ontario and compare that to the earlier scenario in Vancouver.
Initially, this can be a deterrent to the foreign buyers but they will rebound similar to the Vancouver situation after a period of time.
Expanding rent control
Rent control (non-commercial and non-industrial) will now be applied to buildings built after 1991 as well, meaning all buildings.
Rent hikes across the board will be held to around inflation, and capped at 2.5 per cent a year, although landlords can still apply for special increases if they do renovations or upgrades. Rents can be raised when a tenant moves out.
There are concerns that landlords will suffer and discouraged from building more rental units as expected profits will be lowered.
Next time, we will continue with the new housing rules in Ontario. We will explore how and when some of these will be implemented and what impact they will have on the housing market and our chances of getting to move into “affordable” rental or purchased homes.
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