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Why a foreign buyer tax in Toronto is a bad idea

Why Toronto Absolutely Does Not Need a Foreign Buyers Tax

Many “real estate experts” have weighed in on Toronto’s rising real estate market recently. Many are calling our market a bubble, some are calling for an investor tax similar to the one recently imposed in Vancouver. I have eaten, drank, and slept the Toronto real estate marketplace for 30 years.

Toronto’s luxury real estate market is also a global leader for rent surges

Yet another segment of the Toronto real estate market is showing attention-grabbing strength on the global stage.Luxury rents in 2016’s fourth quarter in Toronto surged 8 per cent over the same period last year, according to Knight Frank’s Prime Rental Index. That’s the greatest increase observed in any of the 17 cities included in the index, which tracks leases in the top 5 per cent of rentals markets.

Toronto realtors frustrated by the soaring housing market

Every time real estate broker Chander Chaddah has to tell one of his clients they didn’t get the house they bid on, “I’m the guy who’s punching my client in the stomach,” he said. “Unless you’re some kind of masochist, who enjoys doing that?”

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TRANSCRIPT

Andrew la Fleur: Today is Monday, March the 27th, and this is what’s happening in the condo market this week. Before I jump into this week’s episode, just want to give a quick plug to Jiffy. Jiffy’s a great app and a great resource if you’re a landlord, if you own rental properties, or even if you don’t, even if you just own your own property. It’s great for … Basically, an app for services on demand, anything you could think of for your home. Definitely check them out. Just had another great experience with them here at my own house. A guy came in and fixed my furnace and it was great service, very easy, quick, simple and it’s all done through the app. I’ll include my referral link there if you want to check them out if you haven’t already, Jiffy on Demand.

I want to jump into this week’s articles. The first article is actually a blog post from … An article from Brad Lamb, the developer, condo developer Brad Lamb, and he had a great article that he put up on Facebook talking mostly about the foreign buyer situation, the foreign buyer tax debate that’s going on in Toronto. Basically, he’s coming out very much against the foreign buyer taxing, it just doesn’t make any sense. It’s not going to do anything positive for the market to bring the foreign buyer tax in to Ontario, as it has been in VC. It talked a lot about the points that we’ve talked about on this podcast and in these videos over the past few months. Basically, the foreign buyer tax in Vancouver has proven to do really nothing to the market. It slowed it down temporarily as people took a step back and sort of a wait and see what’s going to happen with this, but now if you look at what’s happening in Vancouver, they’re on the cusp of another booming Spring market, multiple offers all over the place.

The underlying issue of supply is not being addressed, so you’re trying to mess around on the demand side of the equation. It’s just not really getting any kind of results in terms of slowing the price momentum down in the market. It talked about how foreign buyers are an important component of the pre-construction market in Toronto and how if you took out the foreign buyer component, that would really have an impact on the overall economy of Toronto and of Canada. I don’t know if I agree with that point. He seems to think that foreign buyers are a large percentage and maybe they are in his projects, I had no idea, a large percentage of the market, pre-construction market. I’ve been talking about this for years now on the podcast, interviewed many developers, talked to many people all over the industry, the largest number that I’ve heard any developer say that the foreign buyer component is, is about 20 or 25%, that’s the largest I’ve ever heard anyone report.

Could it be higher? Could they be hiding the fact that their sales to foreign buyers are much, much higher than that? Perhaps, but I don’t see any reason why they … What incentive they would have to do that. Are there builders out there who are selling higher than 20, 25%? Sure. I haven’t surveyed every single builder in the city, but for the vast majority of builders that I’ve talked to, and interviewed, and researched, and people that I know who’ve researched them in the industry, the number seems to be, again, around the 10% market, maybe 15. Most projects would be in the 5% or less range, but you have the odd project where they do have a specific marketing campaigns overseas, maybe they do 15, 20, 25% of a building overseas, but that’s definitely the exception, rather than the rule. Again, the biggest thing is that the condo market’s moving so fast, pre-construction market, foreign buyers don’t have time to get into most projects, because they’re sold out locally so quickly. The builders don’t need to go overseas and exert that kind of energy and those kind of expenses to do that.

That’s a great article there to check out from Brad Lamb. One of the other things I want to point out is a great quote that he has here that is something, again, we’ve been talking about. He says, “We currently have prices rising too quickly. They will naturally outrun themselves in a year or so. Affordability and local investor malaise will kick in shortly and naturally. Governments should not interfere with markets. Let them run their course.” Again, this is something I’ve been saying over and over again and I’m going to continue to say it, because it’s I think a very important point that the market we’re in is not normal. This craziness of 25, 30%, this is not a normal market, this is an unusual situation.

Things will revert back to normal soon, we will go back to our normal price increases, the market may even flatten out for a period of time. This is a normal thing that will happen in the market. Again, what I’ve been telling people is don’t get used to these 25, 30% price increases, don’t invest with this in mind thinking that this is how you’re going to get rich quick, or buy a property and you’re going to be a millionaire over night kind of a thing. That’s not how real estate investing works, that’s not how it has ever worked. The current state that we’re in, it’s going to run its course, as Brad said it very well. Basically, the steam is going to come out of the market at some point, prices cannot continue on this track forever, it’s going to slow down naturally.

Okay. The next article is from BuzzBuzzHome and the headline is, Toronto’s luxury real estate market is also a global leader for rent surges. Looking at the luxury market in Toronto on the rental side and there’s some research out from a company that basically said the Toronto luxury rental market. They define it as the top 5% of the rental market, the top 5% of listings. Prices there have gone up about 8% in Toronto, 8% year over year, and they’re comparing it to different global cities, London and Hong Kong and so on, and Toronto is leading the pack. That really follows in line with the rental market as a whole, which has gone up about 9 or 10% in the last year, so that stat is consistent with the stats we’ve seen locally here. Again, I think the bigger story here on the luxury market is, and something we’ve talked about and I’ve talked about in … If you’re receiving my weekly emails, you’ve heard this from me.

The mid-market, the normal sort of product that we’re investing in, the condo market, has shot up so dramatically over the past few months that the luxury market now is actually a great opportunity to invest in, because its remained relatively flat. If the mid-market stuff has gone from $600 a square foot, to $900 a square foot over the past year, the luxury product, which is traditionally around that $1000 a square foot mark and up, that segment of the market has still remained relatively flat at around … You can still get great, great luxury, true luxury product and luxury buildings and luxury locations for around $1000 a square foot and when you see that the mid-market stuff has shot up so much, there is tremendous opportunity there on the luxury side of the market. We’re seeing it in the rental side as well. As rents have risen so much and as the price to purchase homes has risen so much, more and more people are looking at renting, more and more renters are in the market and that includes the luxury market as well. We’re seeing a lot of people looking to rent even luxury products and luxury condos and the rental price increases are happening there as well.

The last article I want to look at today is from the Globe and Mail and it is, Toronto Realtors Frustrated by the Soaring Housing Market. Basically, interviewing a couple of realtors and talking about their experience in the market right now on the resale side of things. There’s maybe some perception out there that when the market is booming like this, all of the realtors, we’re all rejoicing and giving each other high-fives and having a great time. It’s certainly preferable to a recessionary market, but it’s not without its frustrations as well. It’s a very difficult task to find, if you’re working with a buyer, to find them a property to buy. It’s really, a lot of realtors are sort of wringing their heads and hands and just extremely frustrated with the market right now. On my own side of things in the pre-construction side working with investors, this is really the first time in my career, ten years of doing this, where I have way more investors who are ready and willing and able to purchase property today, right now, they’re locked and loaded, ready to go, and they want to invest in the market, but there’s just no product, there’s no supply out there.

When a new project launches, I have two or three times, or in some cases, five or six times as many buyers as we’re able to get units in a given project, because the demand overall in the market is just so great. Buildings are selling out overnight. Entire buildings are selling out overnight in many cases. Yeah, I would agree with the sentiment here that I am personally looking forward to when the market does slow down a little bit, we’re able to provide and meet the needs of all of our clients in a timely manner. Such is the case right now and if you’re feeling that, if you’re watching this video and maybe you’ve even maybe got an email from me saying, “I’m sorry the demand is just too high in this project. We weren’t able to get you in this time, let’s look at other alternatives.” You’re not alone. This is across the whole real estate market from rentals to purchasing resales, houses, condos, pre-construction investors. We are all in the same boat together and it’s just that is the market right now. It’s in a …

Like I said, it’s a very unusual situation. It’s not going to be like this forever, so we don’t need to throw up our hands forever and say, “It’s never going to happen.” The market will change at some point. We will go back to normal at some point. Yeah, I for one and many other realtors are looking forward to it. Hopefully it comes relatively soon. We will see some change in the market and some return to normal. Okay. That’s it for this week, I hope you enjoyed this video and again, all the links for this are on the blog post below, so check them out. Thanks.

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