Canada’s luxury real estate market is on fire. Can taxes from foreign homebuyers cool this? – National



The pandemic real estate craze in Canada is peaking, according to new data compiled by Sotheby’s International Realty Canada.

The report, which tracks real estate sales over $ 1, 4 and 10 million, shows three-digit growth in major Canadian cities in terms of the number of luxury homes and condominiums that changed hands in the first half of 2021 compared to the first half of 2020. of the year.

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“This is the first time in a long time that we are seeing this across the country, with all major (urban) centers operating at full capacity,” says Don Cottic, President and CEO of Sotheby’s International Realty Canada.

He optimistically hopes that momentum will continue until 2022, even as Ottawa promises to introduce a tax on empty properties owned by foreign non-residents.

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“All indicators point to a strong bull market in 2022,” he says.

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Sales of luxury goods exceed pre-pandemic levels

While the onset of the COVID-19 pandemic briefly led to a sharp drop in home sales in the spring of 2020, sales of luxury homes are high this year, even when compared to pre-pandemic sales.

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For example, in the Greater Toronto area, in the first six months of 2021, there were 414 registered properties worth more than $ 4 million, up about 300% from 103 such properties sold in the first half of 2019.

Overall, between January and June 2021, residential sales of over $ 1 million increased to 29,394 transactions, an increase of about 240 percent from 8,612 transactions over $ 1 million recorded in the same period in 2019.

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The data likely reflects both frantic buying and selling activity, as well as the fact that skyrocketing valuations are forcing more properties to exceed the price threshold that has traditionally been considered “luxury.”

Nationally, sales hit an all-time high in March, according to the Canadian Real Estate Association, before settling at lower but still historically extraordinary levels in April and May.

Home prices have also skyrocketed across much of Canada, with the national average home price in May 2021 at just over $ 688,000, a whopping 38 percent over the same month last year.

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According to a report by Sotheby’s, the luxury goods market across the country is in the present. In Vancouver, the number of homes sold for more than $ 10 million is up 300 percent from the same period last year. In Montreal, a condominium was sold for $ 12.9 million, breaking Quebec’s historic record for multiple-listing system (MLS) condominium prices.

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And even in Calgary, sales of detached and attached homes have shown significant activity: in the city of Calgary, 615 properties were sold for more than $ 1 million, although, according to the report, sales of condominiums at prices above this level still represented a very small percentage of the market.

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The factors driving sales in the upper echelons of Canadian real estate are the same factors that have fueled homebuyer fever in the rest of the home market: record low interest rates, a desire for bigger properties and more space, and a chronic housing shortage, Cottic said.

The luxury goods market moved “in tandem” with the broader market, practically stagnating in March and April, but then quickly recovering and gradually warming up in summer and fall of 2020 and winter, reaching stunning sales volumes in spring 2021.

As with the rest of the market, sales activity has eased somewhat recently, but remains strong, says Kottik. He believes that this is just a temporary “respite”. He predicts that as Canada reopens its borders to immigration and interest rates remain low, buying pressure will increase again.

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National tax imminent on foreign homeowners

Cottic believes that even a looming federal tax on unoccupied and underutilized properties owned by foreign homeowners will not slow down Canada’s luxury real estate market much.

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As eye-popping house price increases have made the dream of home ownership out of reach for many young Canadians, the Trudeau government has pledged to introduce a nationwide levy on foreign homeowners in an effort to suppress international speculators.

The tax is expected to generate $ 700 million in additional revenue over four years starting 2022-2023, the money, Ottawa said, will be used to improve housing affordability for Canadians.

British Columbia has a 20 percent land transfer tax for foreign buyers in some regions, as well as an additional levy on speculation on vacant homes, while Ontario’s 15 percent tax applies to foreign buyers investing in certain cities.

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But due to the fact that immigration stopped during the pandemic, the vast majority of those who bought multi-million-dollar homes in the country over the past year were Canadians, Cottic said. At first, these were wealthy buyers moving to larger properties, leaving central urban centers or moving around the provinces. According to him, then mainly domestic investors joined the fight.

“Real estate is now considered an asset class,” he says.

He expects that once the border opens, international demand for Canadian housing will return from both foreign investors and immigrants, regardless of the new federal tax.

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Some economists believe that even a tax on empty homes exclusively for foreign buyers could cause a cold snap in the housing market, curbing the “fear of missing out” mentality that informally grips buyers in many parts of the country.

However, some housing experts argue that the government’s efforts to cool the market should be focused on all investors.

“Any policy that needs to be put in place should be investor-oriented, period, whether domestic investors or foreign investors,” John Pasalis, president of Realosophy Realty in Toronto, previously told Global News.

To dissuade buyers from buying real estate just to flip it after a short period of time and embezzle the profits from the rapid appreciation, Ottawa may impose a residential property sales tax that gradually drops to zero over five years of ownership, – Senior Economist BMO. Robert Kavchich wrote about this in his March report.

“This can easily crowd out speculation and change the psychology of the market,” he wrote.

© 2021 Global News, a division of Corus Entertainment Inc.


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