A new barrage of plans to cool Canada’s housing market will put the market and country to the test.
The media headlines have been dominated by word of new measures to cool the Ontario housing market. If successful, those policies may be the framework for further expansion of regulations to manage markets.
The depth and breadth of these moves in addition to those already in place, will test whether Canada can manage a soft landing or not. If so, it could serve as a model to be replicated around the globe, while making Canadian real estate even more attractive for those looking to preserve wealth.
Historically, it has been increasing difficult, if not impossible, to cool down a housing market without causing a crash. It’s typically the fear of the unknown, when news like this comes out which causes a deep crash, not necessarily the fundamentals supporting the market.
Here are 4 Upcoming Trends that are set to put Canada’s housing market to the test and how might it impact the rest of the nation?
New Taxes on Foreign Buyers
Premier Kathleen Wynne’s new plan includes a new 15% non-resident speculation tax on foreign buyers purchasing 1-6 unit properties. Although many supporters praised the new tax designed to slow down hot real estate markets such as Ontario, many fear that the tax will deter foreign investment over the long- term.
Rent controls will now be placed on all buildings, capping rental increases at 2.5% or the rate of inflation, if it is lower than that. This will severely limit the ability of investors to keep up with rising costs, though may provide much needed relief to those in need of affordable housing.
Over $125M has been dedicated to incentivizing builders to construct more rental apartments. Although the rapid building of towers in the GTA are being blamed for the current housing situation, the hope is that this new stock will remain affordable to renters and will alleviate the tight market.
Vacant Property Fines
Toronto will get the greenlight to begin levying additional taxes against those with vacant properties. The move follows a similar vacant housing tax rolled out in Vancouver, which has been implemented to slow down property speculation.
Property Flipping Prevention
Additional changes to the law outlined by a Globe and Mail report would tackle the ability to use assignment clauses and for real estate investors and agents to resell and flip houses and condos at significant markups.
The harshness and reach of these new rules would be sure to crush many other housing markets around the globe. Hopefully, Canada will once again prove that it is one of the most successful and stable economies on the planet.
Yet, while it may ensure sustainability in the long run, residential property investors would certainly be wise to take a break from the market and watch how it plays out. This may not only send more of the population west again, but could be very good news for commercial real estate investors in Alberta.
Investors still need the safety that real estate assets can provide as well as the consistent cash flow. Well positioned commercial properties in Western Canada may deliver exactly what more investors need next, while bolstering the performance of existing investors in these properties.