CorrCan Media Group

Questionable value of surtax on foreign home buyers

Questionable value of surtax on foreign home buyers

Questionable value of surtax on foreign home buyers

by The Honourable Joe Volpe, Publisher

TORONTO – On hopes that this public discussion, as it were, regarding the “cooling” of the white-hot real estate market gets better airing than what is currently offered. So far, the critical mass of “opinion” and analysis is not very encouraging.

Premier Wynne has just surrounded herself with an election-oriented team. Professionalism and competence aside, such teams invariable assess the political advantage to decisions about consumer, make that, public, policy.

This is especially so when a government finds itself at the bottom of a very steep disapproval rating. Sometimes, what appears obvious is anything but.

With the average price of detached homes in Toronto exceeding the one million range, and condominium costs (before maintenance fees) as high as $2,000 per square – and beyond depending on accessories and location – it is not hard to see how out-of-reach home ownership can be for the average income earner or for younger people.

Putting a tax on foreign investors who are speculating on the future price of the residential market in Toronto will not result in making those homes more affordable.

Some buyers will leave the market. But so will builders/developers whose own finance considerations will demand a commensurate removal of supply in order to sustain prices.

Even if, as some argue this will only affect 10% of the market, how many construction jobs will disappear as a result? Yesterday, Corriere Canadese, relying on Ontario ministry of Finance data, pointed out that 437,000 jobs are directly involved in the Construction sector in Ontario. At least half of them in Toronto.

Even if Premier Wynne’s government were to implement the foreign investors tax and the impact would be a loss of 10% of those jobs (because of decreased demand for product), the number of full time, well paying jobs is significant. Is one of those 40,000 jobs yours?

Responding in part to the high average costs of homeownership in 1989 ($272,000 for a detached home in Toronto), the Conservative government of the day played with interest rates to cool off the market. It took three years and a general election to correct the distortion in the marketplace dynamics. Unemployment skyrocketed to the low double digits. It surpassed 15% among those 15-24 years of age. Interest rates hovered around the 10% range.

Today, 5- year fixed rate mortgages can be had for 2.24%. borrowing is relatively cheap. If you are a foreign buyer, you will also be attracted by the relatively low value of the Canadian dollar, by the undervaluation of Toronto housing relative to other global centres. The 15% tax on your net profit upon resale is unlikely to make a big dent in you bottom line expectations.

The Ontario Teachers Pension Plan and Omers, with a combined fund value of approximately $225 Billion, may have to invest somewhere else as large scale projects diminish. They might not have so sanguine an approach to a cavalier treatment of their potential returns.

Their members, teachers and other employees in the “public sector” are all Ontario residents. So are the many individual homeowners, asset rich and cash poor who would suddenly see their equity evaporate because public policy makers may move against the “evil foreigners” who are taking advantage of the free market system.

(Thursday 29 September 2016)

Download “Questionable value of surtax on foreign home buyers”

More in Esteri
Cafone-in-chief
Mar Sun ,2017