One out of every 10 condos built between 2016 and 2017 in the city of Toronto is owned by a non-resident of Canada. And nearly 9 per cent of recently built condos from 2006 to 2017 in the city have had at least one non-resident owner on title, according to a new government data report analyzed by Andy Yan, director of the City Program at Simon Fraser University, and an urban planner who recently provided similar analysis for Vancouver.
For The Globe and Mail, he’s now taken an in-depth look into the same data set for the Toronto market. Mr. Yan offers a new perspective, with summaries of non-resident ownership by specific geography, property type and period of construction.
“It’s the difference between using a telescope and a microscope to take a detailed look at non-resident ownership in our housing markets,” Mr. Yan says of his analysis. “We are seeing that owning new and expensive property in Canada doesn’t necessarily mean you actually live in the country.
“It’s illustrative of the global consumption of local residential real estate, and how Toronto and Vancouver are chapters in the emerging new story of Canadian housing.”
The data set, supplied by the Canadian Housing Statistics Program (CHSP), has its limitations because it does not include presales, real estate speculators or properties purchased with foreign money by a Canadian resident. CHSP looked at properties with a mix of resident and non-resident owners, as well as properties with only non-resident owners, to create a category called “non-resident participation."
The data set captures only the early months of the Non-Resident Speculation Tax in Ontario.
Mr. Yan says the CHSP definition of “non-resident ownership” is a narrow one. He would like to get statistical clarity on homes that are principal tax residences, compared with those that are speculative investment vehicles, for both residents and non-residents.
“We are seeing that the prevalence of residential property ownership in Toronto and Vancouver doesn’t necessarily mean you pay income taxes here,” he says.
The CHSP’s new approach reveals a higher number than that released by the Canada Mortgage and Housing Corporation (CMHC) and Statistics Canada in late 2017. A flurry of news reports on their findings at the time said that non-residents owned only 3.8 per cent of all residential properties in metro Toronto.
But the percentage is double that in the Toronto census metropolitan area, with 7.6 per cent of all condos having at least one non-resident owner.
“The analytical details matter as non-residential ownership is highly sensitive to location, property type and period of construction, certainly in Vancouver, but now we know Toronto, too.”
The CHSP is a joint project between the two agencies created to specifically address significant data gaps in the country’s housing markets – and the gaps have been glaring. A big change is methodology. CMHC based its previous estimates of foreign ownership on surveys with condo building managers. The CHSP report of March, 2019, connected property title records to federal income tax returns and immigration records.
In metro Toronto, there were 66,240 properties worth $44-billion involving ownership by at least one non-resident. In Metro Vancouver, by comparison, non-residents participated in the ownership of 58,710 properties valued at $76-billion.
In metro Vancouver, the rate of non-resident ownership of new condos is much higher, close to one in five in the city and one in four in some municipalities.
He says the median value of a resident-owned newly built condo in the city of Toronto is $636,000 and the median value of a non-resident owned condo is $651,000. In the city of Vancouver, the median value of a newly built, resident-owned condo is $658,000 and the median value of a non-resident owned condo is $730,000, Mr. Yan says. But it’s the gap in detached house values that are glaring. In the city of Vancouver, a newly built, detached house owned by non-residents had a median value that was $420,000 more than those owned by residents. In the city of Toronto, the difference was $480,000 for a detached house.
That underscores Vancouver’s status as a resort town – perhaps soon to be joined by Toronto – says Mr. Yan, “where wealthy people buy global pied-à-terres to either use part-time, or to store wealth.”
The new data also reveal the popularity of newly built condos as an investment or speculative product for non-residents.
“They are the preferred currency on this type of exchange as opposed to townhouses, rowhouses and semi-attached houses,” Mr. Yan says. “So, that’s the question: Is the non-resident driving a large part of the condo market? Has non-resident ownership now become a cornerstone in a building’s market feasibility, as opposed to this type of ownership being the decorative drapes signalling Canadian desirability and livability?”
The industry has definitely come to depend on the foreign buyer, says John Pasalis, founder of Toronto’s Realosophy Realty. Mr. Pasalis also writes reports, writes and speaks on the industry.
The preconstruction condo industry is proof of that dependence. He points out that most local income-earners could afford to pay $1,000 a square foot for an existing condo unit rather than the $1,300 a square foot they’d have to pay for a presale. The non-resident buyer is more likely to take on that 30 per cent extra because they can flip the property as an assignment, prior to completion.
Mr. Pasalis was not surprised by the data, and fully expects that the numbers are much greater when the inflow of foreign money is factored in.
“That [figure] is purely non-residents. If we think about what percentage is being fuelled by foreign capital, via someone who is a resident here, it’s probably more than double.
“When we think about how home prices get so disconnected from fundamentals, this is a big factor behind that. When we have a lot of money flowing from overseas, and people investing in our housing market, the constraint isn’t on income – it’s on how much money can get over here to push prices up.”
Mr. Pasalis says the disheartening part is that government, including the CMHC, didn’t make an effort to obtain accurate data on the forces driving the housing market sooner, before citizens took on more debt in order to attain home ownership.
“That’s the worst thing,” Mr. Pasalis says. “What you would have expected from CMHC is, ‘yes, we have done this research, but it doesn’t mean there is no foreign money. These are the problems with the research methodology, and we need to do more.’
“They didn’t do that. They came out and said, ‘Our stats say it’s only 4 per cent, so stop complaining about foreign money.’
“I think it’s disappointing to have seen that. It’s great that we are seeing this data now, but think about the Vancouver and Toronto housing markets, and what has changed over the last four years, and the acceleration in prices. This is where data is important, had some of this been more visible and clear, could they have mitigated these risks and this acceleration in home prices? Because volatility in the market is not good.”
Toronto mortgage broker Ron Butler has been in the mortgage business for 26 years and he always doubted government agencies and politicians who claimed that non-resident ownership was a non-factor. Now that it’s reportedly much more difficult for wealthy buyers to take money out of China, the market is slowing, depending on the neighbourhood. A property in a great downtown location is still selling, although other areas have flattened.
Foreign capital was the ignition for the housing market and low interest rates were the fuel, he says. For many years, housing markets in Toronto and Vancouver were driven by that volatility.
“Here’s the ultimate truth: They [non-residents] will stop coming and they are not required to buy. When there are no more buyers and the capital to do the buying is from somewhere else, there are no hand grips on this thing, there’s nothing to grab. It’s a water slide. You keep going till you hit the bottom – because now there’s nobody that would jump on that house for $2-million.
“We all understand how this happened. The people coming here are first-generation wealthy, and they don’t trust their government. They want assets somewhere else, in case something goes wrong.
“Our education supports turning kids into permanent residents. So you send your kids over, you get them to become a permanent resident through the education system, and you start sending money over. And that’s been the whole story of this entire run-up in both cities.”
That’s why the new data falls short, they say, because they don’t include the foreign capital that comes into the real estate market through residents.
Overall, Mr. Butler is optimistic about the Toronto market because the city is benefiting from immigrants who are growing the tech industry and other job markets. But he’s seen short-term consequences in the housing market he finds disturbing.
“Who in the name of God is paying $1-million for a crappy 1,000 sq. ft. World War Two bungalow in a crappy part of town? That’s insane.”
Mr. Butler has seen residents become over-leveraged to the point that they are borrowing more and more money. If government had created policies to protect against inflated house prices, they’d have done their citizens a service.
“I blame the provincial, federal and municipal governments, because when you are busy calling legitimate journalists racist like they were four years ago, you are papering over a problem you will have to live with in the next decade. If you’d just thought of it sooner, imagine how much better off you’d be.”
As to whether the development community has become dependent on foreign capital for financing of projects, Mr. Butler offers a fitting anecdote. An established private lender he knows was invited to a meeting two months ago by a developer of townhouses, on the outskirts of Toronto. The last phase of the project wasn’t selling, so the developer wanted to create a financing program that would offer buyers a two-year interest-free mortgage. The developer would charge more for the townhouses, give the private lender a lump sum and enable her to loan the money without interest.
“This is how car leases work,” Mr. Butler says. “You pay too much for the car, and with this, you pay too much for the townhome. This was done a lot in the nineties.”
The lender asked the developer and his sales team why their final phase wasn’t selling, considering their previous success.
“Finally, the guy at the end of the table, the sales boss, he says, I’ll give you a really simple answer: ‘there are no more speculators. We’ve got to get the speculators back.’ ”