With the recent installation of the non-resident speculation tax, a lot of policy makers expected to ease the demand on housing supply. They rationalized that the presence of foreign buyers in Toronto’s market was speculative investors.
How wrong they were.
The question, I’d like to pose to you, is why would an investor from China or India invest in Toronto’s real estate market?
The fact is, major metropolitan areas in both countries have seen a higher return on investment on real estate with less restrictions on ownership and selling.
That said, people are still interested and buying in Toronto’s market.
The fact is, there is fundamental organic demand for real estate. When you have a safe and less volatile economy than many parts of the world, you have a market that people would be wise to park their money in.
That said, there is an upsurge in people arriving in Canada to study. Realistically, the tuition for Canadian universities are much lower, even for international students than in the US. That means a world-class education in a country that costs much less than the other North American alternative.
Those are a few prime examples of why Canadian and particularly Toronto home prices are so robust. The idea is, that while it’s increasingly difficult for typical resident home buyers to purchase a home, other parties from abroad see a functional value to ownership.
While they see this same functional value as residents of Ontario or Canada, they typically have more liquid assets that the average working Canadian. For that reason, a 15% additional tax is a nominal fee for a piece of property with stable value for their children or themselves.
As the mortgage and lending rules have effectively priced many first-time buyers or local workers, the policy wasn’t all bad. It has effectively decreased competition for those able to buy homes outright or afford a larger downpayment.
While this is unfortunate for many young people who want to enter the property ladder, this is a necessary evil imposed by the Ontario government that will hopefully yield some positive results for Toronto consumers.
As it stands, the real estate market is “down” but actual home values haven’t fallen with it. It makes you wonder whether this is a problem that can be regulated with sweeping measures that don’t actually address the problem of scarcity!
