Real estate experts are cautiously optimistic about Ontario Premier Kathleen Wynne’s 16-point plan to tame the Greater Toronto Area’s surging real estate market. Some are even breathing a sigh of relief in anticipation of fewer bidding wars and bully offers.
Meanwhile, the expansion of rent controls to include buildings constructed after 1991 has raised concerns that developers will be less inclined to build much-needed inventory.
The 16 measures introduced by the government on Thursday, include a 15 per cent non-resident speculation tax, legislation that would allow Toronto and possibly other municipalities to introduce a vacant homes tax, $125-million aimed at encouraging construction of new rental apartment buildings, and more protections for renters and people buying and selling homes.
“It will definitely have a cooling effect, and I think bring speculation down dramatically,” ReMax Integra CEO Pamela Alexander told CTV News Channel. “I think buyers, sellers, and everybody welcomes some normalcy back to this incredible province that we have with respect to the real estate market.”
The average price of detached houses in the Greater Toronto Area rose to $1.21 million in March, up 33.4 per cent from the year before. While sky-high valuations have been a massive windfall for homeowners and investors, many seeking to enter the market in Canada’s largest city have been priced out.
Alexander said she hopes the new suite of policies, dubbed Ontario’s Fair Housing Plan, will help reduce some of that distortion.
“Healthy returns are usually between five and 10 per cent,” she said. “We like a real estate market where prices increase in those ranges, not double digit. That’s what we had for a very long time and it was very positive.”
Royal LePage Johnston & Daniel senior vice president Dianne Usher said she is encouraged by the attention housing affordability is garnering from all three levels of government.
“We really, really support the affordability issue,” she said. “I really do feel that the rent control policies that are in place needed to be addressed for some time.”
However, she warns against building up hope that the new measures will cause things to change quickly.
“If it’s a young couple with a modest income, I don’t think, in the short term, that this is going to help them buy property today. Maybe in the long term as we increase supply, but not in terms of flipping a switch and making Toronto affordable tomorrow,” Usher said.
The real winners, in her view, are Toronto-area renters. The expansion of rent control to buildings built after 1991, eliminates the possibility of monthly payments doubling overnight, as was the case with one downtown building earlier this month.
“It’s very, very good news for renters. The only concern that we may have is that it may inhibit developers from developing more rental units with the policy,” said Usher.
Many observers have noted that Toronto suffers from a perilously low inventory of affordable rental units. According to Urbanation, the average rent per square foot for new leases in the Greater Toronto Area condo market rose 11 per cent in the last quarter of 2016 compared to a year earlier, the fastest pace of growth since at least 2011.
“We certainly hope that the costs to maintain those properties will not be impacted dramatically by this very low ability to increase rents year-over-year,” said Alexander. “Very often costs do exceed inflation. I’m sure there is some sort of balance between what is good for the person renting and what is fair to the individual letting out a condo, for example.”
Toronto real estate broker Tony Ma applauds the new measures to tamp down speculative investment. He expects the pace of transactions will slow down in the short term, and hopes the changes lead to fewer of the bidding wars and bully offers that discourage his clients.
“As a real estate broker, we don’t like bidding wars either. We want a balanced market. We want the best interest for the sellers and buyers. We don’t like the bully offers,” he said.
Ma and Usher are less optimistic about the gains to be had from applying a 15 per cent tax on some non-resident investors. The non-resident speculation tax targets individuals who are not citizens or permanent residents of Canada, and transactions by foreign corporations.
“I’m not certain of the percentage of foreign buyers that exist here in Toronto that fit the category they are going after,” said Usher.
Ma, a 20-year Toronto real estate veteran who specializes in serving Chinese clientele, says his data shows foreign buyers made up just five to eight per cent of the total transactions over the last three years.
“My company has data about who is a Canadian citizen, who is an immigrant, who is an overseas student, who is using a foreigner’s passport to buy,” he said. “So foreign buyers are not a major factor for Ontario’s (and) for Toronto’s real estate market.”