As home prices run rampant in Toronto and Vancouver, a finger is often pointed at foreign buyers gobbling up valuable Canadian property, and a new report suggests Canada should create a special tax for them.
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The instability in the Chinese economy and the dip in the loonie’s value is only adding fuel to the fire, the CIBC Economics report warns.
“The next few years will see even more foreign money entering Canadian real estate markets.”
Just how many properties are actually being bought by foreign owners remains unclear.
The Canada Mortgage and Housing Corp. (CMHC) says rates of foreign ownership sit around 3.3 per cent in Toronto and 3.5 per cent in Vancouver when it comes to condos.
An informal study of Vancouver home sales over a six-month period suggested that two-thirds of buyers were overseas investors.
“It’s true that we do not have all the information we need, and we must accelerate the process of collecting that information,” the CIBC report states. “While we wait, we can start dealing with the speculative aspect of foreign investment.”
The B.C. government has pledged to start tracking foreign real estate ownership.
“We think it’s time to start collecting again.”
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Prime Minister Justin Trudeau has admitted Canada lacks the hard numbers on foreign owners.
“We need more information on what’s actually happening,” said Trudeau on the topic in December. “We don’t have a lot of concrete data.”
When pressed on his position on restricting foreign ownership, Trudeau said it would be a double-edged sword.
“That would potentially devalue the equity a lot of people have in their homes right now,” Trudeau said.
“We have to be very, very cautious about restricting foreign investment in our country.”
The report says Canada is not alone with these concerns, listing New Zealand, Australia and the United Kingdom as countries where new measures are in place to control foreign ownership.
Australia has mandated foreign investors can only build or develop new housing units, and it must be for personal use. New Zealand introduced a capital gains tax if a property is flipped within two years, while the U.K. doles out a capital gains tax of up to 28 per cent.
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It’s too soon to fully assess the success of the new measures, the report cautions. However, in Australia foreign buyers of new homes have dropped from 16 per cent in Q3 of 2015 to the current rate of 12 per cent.
While we wait for the numbers on foreign ownership in Canada, Ottawa could at the least start by applying a flipping fee, the report says.
“Applying a flipping tax on foreign investors might be a step in the right direction,” it states.
“It won’t solve the problem, but it might be an effective way to remove the most problematic element of foreign investment in Canadian real estate.”
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