The Benefits of Turmoil Abroad

With political and economic instability growing around the world, havens of stability and calm will be increasingly sought out by the aspirational middle classes, the wealthy, international businesses, and savvy investors. Canada is one of those safe havens.

While we are in no way a country bereft of serious issues, our political system is stable and not as divided as structures in the U.S., Europe, and parts of the Middle East. Our economy is in decent shape, and we have lots of untapped potential long term. We are also a tolerant and open society where openness to polarizing rhetoric is extremely limited and always has been. The world is well aware of our positives, and Canada has a solid international brand.

In Vancouver, the foreign buyers tax, shifting psychology, and an activist NDP government in Victoria have all blunted real estate. Developers continue to hold back on new construction and prices continue to fall. Chinese money no longer looks to Vancouver real estate as a safe haven. The city has worn out the welcome of foreigners and the shock of government intervention has not lifted. While Toronto’s foreign buyer tax remains unpopular with the real estate lobby, the city’s economic preponderance and heft have allowed it to absorb the consequences of the foreign buyer tax well. Significant sums of money were redirected to Toronto in light of Vancouver’s foreign buyer tax briefly, and much of that momentum is now moving further east; to Ottawa and Montreal. 

In Hong Kong, the political situation is becoming dire. The Chinese government has assembled significant military infrastructure adjacent to the city and has warned that its patience in tolerating the city’s mass protests is almost up. A direct Chinese military intervention is restoring stability to the global financial hub would have a drastic and immediate impact on the Hong Kong economy and its status as a stable centre of finance and business. Media reports in Canada and abroad are already suggesting that Hong Kong residents of means will begin moving out of the city to Taiwan, Singapore, and Korea. They will of course, be transferring their money and assets out of the city if they fear that a Chinese crackdown on dissent would affect their livelihoods. Either way, for now, Canada is well positioned to continue to be perceived as a financial and political safe place in a turbulent world. 

Now Creative Group May 8, 2017 1 Comment

Effects of the Foreign Buyer Tax

On April 20, the Ontario government announced a 16-point housing plan aimed at improving affordability, increasing supply, and protecting renters. The plan’s centerpiece was a 15% Vancouver style foreign buyer tax on properties in the Greater Golden Horseshoe region. In less than 2 weeks, the effects of this plan and the foreign buyer tax are already being felt.

Reactions from realtors have been numerous and strong. Some are saying that the market is beginning to cool and that buying has stalled, while others are reporting that demand is showing no signs of slowing down and that interest and energy remain strong.

The first effect has been a reduction of prices for some homes by a few points, particularly low rises, detached homes, and townhomes in Toronto. Sales were also down by 3.2%. Many new homes have been placed on the market and the supply of listings has soared. Nevertheless, prices generally continue to rise by double digit figures. The increase in April was 25% across the board. The new average selling price for a home in Toronto has now hit just over $920,000.00.

The Toronto Real Estate Board has said that the huge increase in new listings is a positive sign of the market reacting to pent up demand and that if the increases continue the market will become more balanced over the long term. Listings increased by over 33% in April. Although the broader impact of the Fair Housing Plan and the Foreign Buyer tax will take more time to materialize, a close examination of the Vancouver housing market reveals some of the potential long term implications.

Since August 2016, when British Columbia introduced the first Canadian foreign buyer tax in the Greater Vancouver area, prices fell strongly and sales fell by over 25%. However, as of April of this year, prices are again rebounding, with demand for all types of property still strong and increasing. Foreign sales, however, have dropped significantly and continue to fall.

If Vancouver is any indicator, foreign sales, however small, may decline long term in Toronto and the immediate effects on prices, if negative, could correct and rise again in the long run. What is clear is that many homeowners who were on the fence previously or who were waiting to sell are listing their homes now and increasing the supply for buyers.