Vancouver’s affordability crisis could soon become Toronto’s as foreign real estate hunters shift their focus eastward.
British Columbia’s controversial tax targeting foreign investment in Vancouver real estate may soon push buyers to Toronto, according to a new study by TD Bank.
In a report published August 30, TD said real estate markets in Vancouver and Toronto are heading down divergent paths. Canada’s second-largest bank predicts a 10% correction in Vancouver property values over the next year. Toronto, by contrast, will maintain its robust momentum.
“Vancouver has embarked on what is expected to be a modest correction that will be reinforced by the recent implementation of the land transfer tax on non-residents,” TD Bank economist Diana Petramala said in the Regional Housing Report.
Last month the BC government slapped a 15% land transfer tax on non-residents looking to purchase residential property in the Greater Vancouver Area. The tax is intended to put a cap on Vancouver’s growing affordability problem, which has made home ownership virtually impossible for local residents.
The new tax appears to have slowed the pace of new home purchases across Metro Vancouver, although analysts are quick to warn that it’s far too early to claim the market is cooling. According to real estate data compiler SnapStats, sales in the city plunged by half last month, with the more expensive West Side experiencing the most dramatic decline.[1]
According to Patramala, BC’s new tax may lead to a groundswell of demand in Toronto, a region that has not yet imposed any restrictions on foreign ownership of real estate.
“Barring the levying of a similar tax, foreign investors could switch focus to the more affordable Toronto market,” the TD economist added.[2]
Experts are calling on Torontonians to push for a similar tax levy on foreign investment. While foreign capital has had an enormously positive impact on Canada’s largest city, a failure to address the affordability crunch could lead Toronto down a similar path as Vancouver – namely, an entire generation losing out on the opportunity to own property in the city they call home.[3] As it currently stands, house-price appreciation in the region is soaring at a double-digit percentage pace. Another growth spurt caused by wealthy foreign investors doesn’t bode well for the market’s long-term sustainability.
As of July, the resale price of a GTA home surged above $700,000, up more than 16% over year-ago levels. The average price of a detached home surged 21% year-on-year to $952,983, according to the Toronto Real Estate Board.[4]
Toronto and Vancouver represent the two extremes in a national real estate market that continues to defy the Bank of Canada’s expectation of a soft landing. But with record low interest rates and rising equity, a sustained landing in home prices appears to be elusive.
References
[1] Mike Laenela (September 1, 2016). “Number of home sales fall in Metro Vancouver after tax.” CBC News.
[2] TD Economics. Regional Housing Report.
[3] Josh Gordon (September 1, 2016). “Toronto, don’t let Vancouver’s housing crisis become yours.” The Globe and Mail.
[4] CBC News (August 4, 2016). “’Troubling trend’ as Toronto real estate market sees record sales for July.”
