Last Thursday (April 20th, 2017) together with Toronto Mayor John Tory, Ontario Premier Kathleen Wynne and Finance Minister Charles Sousa announced “Ontario's Fair Housing Plan”, a holistic – yet controversial – set of 16 revenue-neutral measures aimed primarily at cooling the Real Estate market in the Greater Toronto and Greater Golden Horseshoe (GGH) Area. Some of the most notable actions include: a 15% non-resident speculation tax for the GGH region, expanded rent control to include all units across the province, vacancy taxes (at regional discretion) and “anti-paper flipping” regulations.
Since the announcement, there has been a litany of interpretations, articles, and speculation about the impact the Plan might have on Ontario residents and businesses, including a Tax Alert released by BDO that can provide further details to anyone interested in learning more. While uncertainty presently and persistently abounds, we wanted to highlight some expected impacts on the broader Canada Real Estate and Construction market in general, and on Landlords and Developers more specifically. Salmaan Alvi, our National Real Estate and Construction Leader, provided his insight on a few of the most prominent questions out there in the marketplace:
Will this Plan cool the red-hot Toronto real estate market as intended?
For this issue, we are best to look to the example of Vancouver. While there was indeed a short-term dip after their non-resident tax was implemented last fall, the market has since recovered and actually grew by 50% in March of 2017. What's more, actual housing prices have held stable, it's just activity that has been reduced (which can mean reduced land transfer and other taxes for the Province and municipalities, etc.)
Further, it is estimated that only around 8% of transactions in Toronto involve non-residents (about half as much as Vancouver), so while there may be an impact, it is not expected to be lasting, as the bigger issue in Toronto anyway is that of supply.
It seems like a short-term win for tenants, but what about the long term?
It is not believed that these measures will generate more rental units on their own, and they may actually have the opposite effect, where we'll see developers going back to focusing on building condos – not apartments – which could make affordability for residents an even bigger problem.
As for Landlords, many of them already have very slim operating margins, and capping rents is anticipated to lead to frustrations with regards to counterbalancing inflation, rising energy bills, property taxes, and other regional levies that are being applied, in addition to general repairs and maintenance.
Top Trends Affecting Real Estate in Canada
What is the expected impact on the national real estate market?
It is believed that there will be a ripple effect felt across the country as a result of this announcement, similar to that which existed when Vancouver attempted to slow down their market last fall. For more than 6 months, Toronto has been the de facto target for investment dollars, and we believe savvy investors will begin to turn their attention to areas outside of the Golden Horseshoe. In fact, some of our clients are already looking at Alberta, Saskatchewan, as well as other parts of Southern and Eastern Ontario, including London and Ottawa.
So actually, this announcement may do a lot of good from a national perspective for other markets, particularly as the broader Canadian economy continues to strengthen.
How can BDO assist clients in navigating the uncertainty?
In addition to constantly monitoring developments and providing information, alerts, and articles about what we're seeing, we are always looking to help our clients in finding the best spot for their investment dollars.
For current clients with holdings in the GGH, our advice in the short term is to stay put. Don't hastily extract your dollars until we see how the market begins to react, or which adjustments may come as a result of the upcoming budget, or even the Provincial election in 2018. There's definitely a lot more coming on this file.
If you have any questions about these measures and how they may impact you, or if you're interested in investing in real estate, contact your local BDO office or reach out to our National Real Estate & Construction Leader, Salmaan Alvi.