Canada’s pandemic real estate craze goes all the way to the top, according to new data compiled by Sotheby’s International Realty Canada.
The report, which tracks sales of properties priced over $1 million, $4 million and $10 million, shows triple-digit growth in major cities across Canada in terms of the number of luxury homes and condos that switched hands in the first half of 2021 compared to the first half of 2020.
“We’re seeing this right across the country for the first time in a long time: all the major (urban) centres are basically firing on all cylinders,” says Don Kottick, president and CEO of Sotheby’s International Realty Canada.
He is optimistic that momentum will carry forward to 2022, even as Ottawa promises to implement a tax on empty properties owned by foreign non-residents.
“All the indicators are leading into a strong bull market going into 2022,” he says.
Luxury sales soaring above pre-pandemic levels
While the onset of the COVID-19 pandemic briefly sent homes sales plunging in the spring of 2020, this year’s sales of luxury homes are strong even when compared to pre-pandemic sale volumes.
The Greater Toronto Area, for example, recorded 414 properties sold for over $4 million in the first six months of 2021, up around 300 per cent compared to the 103 such properties sold over the first half of 2019.
Overall, $1 million-plus residential sales surged to 29,394 transactions between January and June of 2021, up roughly 240 per cent compared to the 8,612 transactions above $1-million recorded over the same period in 2019.
The data likely reflects both frenzied buying and selling activity as well as the fact that soaring valuations are pushing a larger number of properties above the price threshold that has traditionally been considered “luxury.”
Nationally, sales volumes reached an all-time record in March, before settling at lower but still historically extraordinary levels in April and May, according to the Canadian Real Estate Association.
Home prices have also skyrocketed across much of Canada, with the national average home price reaching a little over $688,000 in May 2021, up a whopping 38 per cent from the same month last year.
The luxury market is having a moment right across the country, according to Sotheby’s report. In Vancouver, the number of homes selling above $10 million was up 300 per cent year-over-year. Montreal saw the sale of a $12.9 million condo, which broke Quebec’s historic record for condominium prices on the multiple listing service (MLS).
And even in Calgary, sales of single and attached homes saw healthy activity, with 615 properties selling for over $1 million in the City of Calgary, although sales of condos above that priced remained a very small percentage of the market, according to the report.
According to Kottick, the factors that propelled sales in the upper echelons of Canada’s real estate are the same ones that fuelled homebuyers’ fever in the rest of the housing market: record-low interest rates, a desire for bigger properties and more space, and a chronic undersupply of homes.
The luxury market has moved “in tandem” with the broader market, coming to a virtual halt in March and April but then quickly recovering and progressively heating up through the summer and fall of 2020 and through the winter, reaching eye-popping sales volumes in the spring of 2021.
Like in the rest of the market, sales activity has tempered a little lately, though it remains strong, Kottick says. He believes it’s just a temporary “breather.” As Canada’s reopens its borders to immigration while interest rates remain low, the pressure from buyers will build up again, he predicts.
National tax on foreign homeowners looming
Even a looming federal tax on vacant and underused properties held by foreign homeowners won’t do much to slow down Canada’s luxury real estate market, Kottick believes.
As eye-popping home price increases put the dream of homeownership out of reach for many young Canadians, the Trudeau government has vowed to impose a nationwide levy on foreign homeowners aimed at clamping down on international speculators.
The tax is expected to yield $700 million in additional revenues over four years starting in 2022-23, money Ottawa says will be used to improve housing affordability for Canadians.
British Columbia has a 20 per cent land-transfer tax for foreign buyers in some regions, along with an additional speculation levy on empty homes, while Ontario’s 15 per cent tax applies to foreign buyers investing in certain cities.
But with immigration grinding to a halt during the pandemic, the vast majority of those snapping up the country’s multi-million-dollar homes over the past year have been Canadians, according to Kottick. At first, it was affluent buyers upgrading to larger properties, leaving downtown urban centres or moving across provinces. Then mostly domestic investors joined the fray, he says.
“Real estate is now considered an asset class,” he says.
With the reopening of the border, he expects international demand for Canadian housing to come back from both foreign investors and immigrants regardless of the new federal tax.
Some economists reckon even an empty-homes tax targeted narrowly at foreign buyers may send a chill through the housing market, curbing the “fear of missing out” mentality that has anecdotally gripped buyers in many parts of the country.
Still, some housing experts argue government efforts to cool the market should focus broadly on all investors.
“Any policies that should be put in place should just be geared towards investors, period, whether domestic investors or foreign investors,” John Pasalis, president of Realosophy Realty in Toronto, previously told Global News.
To discourage buyers from purchasing property only to flip it after a short period and pocket the gain from rapid appreciation, Ottawa could impose a tax on residential real estate sales with the rate gradually falling to zero over five years of holding the property, BMO senior economist Robert Kavcic wrote in a report in March.
“This could easily crowd out speculation and alter market psychology,” he wrote.