As you probably already know, the real estate market in Vaughan (and the rest of the GTA) has been in a strong seller’s market for quite some time. Lately (over the past 6 months), the market has become even more heated. So much so, that the provincial government has decided to intervene. Let’s take a look at the major points mentioned this morning by Premier Wynne: (Please keep in mind that information about this is limited as the news just came out today April 20, 2017, but I’ll do my best with the info I have)
1) The foreign buyer tax or the Non-resident Speculation Tax (NRST)
We’ve all heard the headlines “Foreign buyers are driving up our home prices.” Is this true? Unfortunately there has been no data collected on nationality when someone purchases a home. But if I can speak anecdotally from personal experience and from discussions with other real estate agent, I truly believe “foreign buyers” make up a small percentage of home purchases. If I was to guess I’d say it’s in the 4-8% of purchases.
Effective Apr 21, 2017, the 15% NRST will apply to anyone making a purchase of land which contains 1-6 single family residences that is not a Canadian citizen or permanent resident of Canada.
I believe this is the easy low-hanging fruit for politicians to grab. The foreign buyers have become the “boogeyman” and it’s easy for a politician to slap a tax on them without much controversy (and also there’s an election next year.) Unfortunately, I think this is a knee-jerk reaction and believing they’re a small portion of the actual market, this shouldn’t have a drastic effect.
More info here http://www.fin.gov.on.ca/en/bulletins/nrst/nrst.html
2) Rent Controls
Currently only units built before Oct 31, 1991 are subject to rent controls (and allowed a yearly percentage increase in rent). Today’s changes to rent control will be applied on all buildings regardless of when they were built to the rate of inflation – as long as its 2.5% or lower.
This will definitely have an impact on investors looking to purchase homes or condos as their returns will now be subject an approved yearly percentage increase rather than tenant demand)
First of all let’s define what this is: paper-flipping or an assignment sale is the practice of purchasing a new pre-construction residence and reselling it (or assigning it) to a new purchaser before closings. This in and of itself is not inherently wrong. Many buyers purchase a residence and then for whatever reason change their mind and have to resell it before they move in. The problem has been with some people using this as a scheme for tax avoidance (not paying the land transfer tax and capital gains tax) and excessive speculation that has driven the market up. You can imagine some people buying up a whole floor’s worth of units in a condo just to flip them later at a substantial profit.
4) Tax on vacant homes
New powers will allow municipalities to introduce a tax on vacant homes to encourage owners to sell or rent unoccupied units. Details aren’t yet available, but I doubt this is much of an issue in Vaughan. Do you know of many residences that are vacant?
5) A review of the rules real estate agents are required to follow.
This is a big one and frankly I believe is very important. The rules we’ve been governed by are old and in desperate need of an update. Unfortunately there are many stories of the few bad apples that have tainted the industry for us all – some were even caught on camera. The practise of double-ending (representing both buyer and seller) needs to be reviewed and improved. Furthermore the process for multiple offers needs to be reworked. Many are calling for an open bidding process rather than a blind process. No real details have been mentioned about this other than to say that a review is in order.
Realistically, I’m not even sure why this was mentioned as reviewing industry practices will have no impact on making homes more affordable.
So will the changes announced today have a major effect on the Vaughan real estate market?
In short, I’d say not at all. Recognizing that the perception and psychology of a buyer are important – some buyers may very well choose to hold off buying a home until the dust settles, perhaps hoping for a reduction in home prices…but that price reduction may not come.
The real estate market in Vaughan isn’t going to crash, if anything there might be a soft-landing. We might not see the 35-40% yearly increase in home prices we’ve had this year, but yes…home prices will continue to rise at a slower pace. Let’s remember that a more balanced market benefits almost everyone.
We need to recognize that home prices have become exceedingly high because of a shortage of supply. Although some small changes were announced today to address supply, they are nowhere near enough to satiate the number of purchasers buying homes. The demand is just too high. The Fair Housing Plan is just a politician’s attempt at looking like they’re doing something. The laws of supply and demand will trump this attempt.
So should you make any major life decisions based on today’s announcements? I don’t think so. Is it still a good time to buy a home in Vaughan? Yes it is. Is it still a good time to sell a home in Vaughan? Yes it is.