Ontario Government Introduces Action Plan to Calm Toronto's Real Estate Market
Friday Apr 21st, 2017Share
The Ontario government introduced plans this morning in attempt to cool Ontario's rising real estate and rental market, in the attempt to make the housing market "fairer and more affordable."
The measures are in response to the price of the average home in the Greater Toronto Area increasing 33% with the last year, as well as the exposure of landlords surprising tenants with exceptionally large rent increases.
The measures include:
- A 15% tax on home purchases by non-resident foreigners in Toronto and the Greater Golden Horseshoe. Wynne said the tax would not apply to new immigrants who plan to live here, but speculators who will "never set foot in Ontario."
Becoming effective April 21, 2017, a 15% foreign buyers tax will be imposed on the purchase or acquisition of an interest in residential property located in the Greater Golden Horseshoe (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) by individuals who are not citizens or permanent residents of Canada or by foreign corporations (foreign entities) or taxable trustees. This new tax is in addition to Ontario's current Land Transfer Tax.
According to the Toronto Star, foreign buyers made up less than 5% of purchases in Ontario last year.
- Expanding the province's existing rent control system to cover all tenants, not just those in buildings built before 1991 under the current rule. The rent increases must come through approved legislation, but will take effect today, April 20.
It is suggested that the province 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%), unless the landlord gets approval from the Landlord and Tenant Board.
- A rebate of development cost charges to encourage building of more rental housing.
It has been suggested that the province 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.
- A standardized lease document for all tenants.
The province will establish a standardized lease to stop landlords from putting illegal clauses in their contracts with tenants.
- A ban on flipping of pre-construction units by speculators.
It is suggested that the province 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.
- A review of the rules governing the conduct of real estate agents.
The province will not immediately impose any new measures on real estate agents but will review the regulations governing the industry, together with the body representing agents (the Ontario Real Estate Association) and the provincial regulator (The Real Estate Council of Ontario).
- New powers for Toronto and other municipalities to introduce a tax on vacant homes to encourage owners to sell or rent unoccupied units.
- A move to identify provincially owned surplus lands that could be used for affordable and rental housing development. In Toronto the areas identified include the West Don Lands and 27 Grosvenor St. and 26 Grenville St.
- A $125-million, five-year program to encourage the construction of new purpose-built rental apartment buildings by rebating a portion of development charges.
- More flexibility for municipalities when it comes to using property tax tools to encourage development.
- The creation of a new Housing Supply Team with dedicated provincial employees to identify barriers to specific housing development projects and work with developers and municipalities to find solutions.
- An effort to understand and tackle practices that may be contributing to tax avoidance and excessive speculation in the housing market.
- A review of the rules real estate agents are required to follow to ensure that consumers are fairly represented in real estate transactions.
- The launch of a housing advisory group which will meet quarterly to provide the government with ongoing advice about the state of the housing market and discuss the impact of the measures and any additional steps that are needed.
- Education for consumers on their rights, particularly on the issue of one real estate professional representing more than one party in a real estate transaction.
- A partnership with the Canada Revenue Agency to explore more comprehensive reporting requirements so that correct federal and provincial taxes, including income and sales taxes, are paid on purchases and sales of real estate in Ontario.
- Set timelines for elevator repairs to be established in consultation with the sector and the Technical Standards & Safety Authority.
- Provisions that would require municipalities to consider the appropriate range of unit sizes in higher density residential buildings to accommodate a diverse range of household sizes and incomes, among other things.
Kathleen Wynne announced the proposed changes at a news conference also involving Finance Minister Charles Sousa and Ballard. When asked how effective the measures will be when demand for homes continues to outstrip supply and bidding wars on downtown homes are commonplace, Wynne said, "we are not interested in controlling the market, - that is not the aim - we do believe that there is a need for interventions right now to calm what is going on, to put protections in place."
Wynne commented further saying she would not rule out other measures if she sees the need. "It's about helping people to be able to buy a home, to be able to rent a home or to stay in the rental home they're in," she said.
Will we still be paying a Land Transfer Tax?
When you acquire land or a beneficial interest in land, you pay land transfer tax to the province when the transaction closes. Land transfer tax is normally based on the amount paid for the land, in addition to the amount remaining on any mortgage or debt assumed as part of the arrangement to buy the land. In some cases, land transfer tax is based on the fair market value of the land, such as in the following examples:
- the transfer of a lease with a remaining term that can exceed 50 years
- the transfer of land from a corporation to one of its shareholders, or
- the transfer of land to a corporation, if shares of the corporation are issued.
The average price of a home in Toronto is $916,567 as of March according to the Canadian Real Estate Association. Land Transfer tax on that home would be is $14,806 (granted you are not eligible for the first time buyers rebate).
Will there still be a First Time Buyers Rebate?
When you buy land or an interest in land in Ontario, you pay land transfer tax. First-time homebuyers of an eligible home may be eligible for a refund of all or part of the tax.
To claim a refund, you must be at least 18 years of age, you cannot have owned a home or an interest in a home anywhere in the world, and your spouse cannot have owned a home or interest in a home, anywhere in the world while he or she was your spouse. Previous ownership in a home means you do not qualify for the land transfer tax first-time homebuyers refund. The method of acquiring the home (e.g., purchase, gift or through an inheritance) is not relevant.
Will the proposed changes be enough to spur change in the market?
Time will tell, however when you speak to those invested in the industry, it is clear something needs to be done. Real Estate agent, Teresa Pileggi feels that it "might not be such a bad thing to slow the market". She explains, "we have price increasing daily. Incomes are not increasing, food prices, gas prices, utilities and so on are rising. Unemployment rate is high despite what is reported. Bidding wars are far out of control if you ask me."
Peliggi continues to say, "It's pretty sad when I have a couple of corporate clients who make way above average money and can't even get into the market. Imagine our younger generations who home ownership is now only but a dream. Unfortunately, all these measures that will be implemented will only slow the market a bit." She describes her experience working with first time home buyers who were unable to "even get into the market due to all the bidding wars and homes selling way over their value". She explains that "East Gwillimbury homes 3 years ago were selling for 500,000-650,000. This past few months those same homes are now selling for 1,100,000 to 1,600,000”.
When asked about the foreign buyers tax, realtor Dave Smerglio, feels based on his experiences, that the percentage of foreign buyers will turn out to be higher than 5%. He suggested that foreign buyer tax may expose over the next year whether or not the current 5% figure is an accurate reflection of the foreign market purchasing in Ontario.
Dave also feels that addressing the 1991 loophole and applying rent control to Toronto may prove beneficial "if it prevents landlords rents from increasing rent astronomically", however, he feels when a tenant leaves, "the landlord should have the option to raise rent as they choose."
It is clear that there is no easy solution to the rising housing prices in Toronto, however changes have been implemented - let's hope this solves some of the issues.