The number of homes sold to foreign buyers in Toronto has dropped steadily over the year since the province introduced a 15-per-cent tax on such purchases, falling from 7.2 per cent of sales in May, 2017, to 2.5 per cent over a three-month period ending in February.
New data from the province’s Finance Ministry show the continuing fall in foreign purchases as house prices in Toronto’s once red-hot housing market have stabilized after a sharp decline that began last April when Premier Kathleen Wynne’s Liberal government introduced a foreign-buyers tax as part of a package of housing measures called the Fair Housing Plan.
The average price of a home in the Greater Toronto Area was just more than $920,000 last April, but by March of this year had fallen to around $785,000, a decline of more than 14 per cent driven by plummeting sales.
The drop in sales to foreign buyers in Toronto is mirrored by a similar slump in a vast area around Toronto known as the Greater Golden Horseshoe, where the number of international buyers has fallen to only 1.6 per cent of properties sold between Nov. 18 and Feb. 16. Foreign transactions made up 4.7 per cent of sales in the month after the tax’s introduction. The Bank of Canada also hiked its benchmark interest rate twice last summer and again in January, which has led to an increase in the cost of a mortgage.
Ms. Wynne’s government has said the falling sales to non-residents are a sign of the tax’s success. “Our data continues to indicate that our Fair Housing Plan measures have helped to calm the housing market,” Finance Minister Charles Sousa said in a statement. “People are finding more affordable alternatives as housing supply has increased, and rent control measures are helping to ensure rental prices remain predictable for tenants.”
The largest number of homes sold to foreign buyers during the three-month period ending in February was recorded in Toronto with 267 properties sold. Foreign buyers in Toronto prefer to purchase condominiums at a higher rate than Canadians, with condos making up 77 per cent of the property sales to that group.
While the tax is having an impact on the market in Toronto, the overall effect is limited, according to John Pasalis, president of Realosophy Realty Inc. “This isn’t a solution by any means to Toronto’s affordability issues, but it certainly helps it,” he said.
A lot of foreign money is still entering the market, according to Mr. Pasalis, often through overseas parents buying investment properties for children studying at Toronto universities.
“The bigger issue is people flowing money in from overseas and skewing the market. This tax does not curb that,” he said.
The area with the largest percentage of properties sold to foreigners was in York Region, which includes the communities of Richmond Hill and Markham, where 3.2 per cent of homes, 163 in total, were sold in international transactions. At the tax’s introduction, 9.1 per cent of homes in that region were sold to foreigners.
Sales to foreigners outside the Greater Golden Horseshoe, in areas where the tax doesn’t apply, have also fallen from 2.6 per cent of all transactions last spring to 1.7 per cent in the latest data.
Progressive Conservative Leader Doug Ford has said that he would remove the tax if his party forms a government after an election expected on June 7. Instead, it would look to build more homes on underused land around Toronto.
While Ms. Wynne’s government modelled Ontario’s tax on one introduced earlier in British Columbia, the NDP government in B.C. announced in February that it was increasing its tax to 20 per cent and extending it to areas beyond Metro Vancouver. While the Ontario government has not publicly discussed a similar move, the province’s NDP opposition announced in its electoral platform that it would add an additional housing speculation tax to any foreign or domestic buyers who don’t pay taxes in Ontario.