June 22, 2016 | foreign investment
It’s not like foreign investment is a new thing. Think of all the snow birds who have bought up property in Florida over the past several decades. Let’s be honest. People have been leaving their countries for foreign investment options for a long time. I can’t imagine there is any shortage of long wintered Canadians coming up to retirement who are considering buying a property in another warmer country.
This kind of foreign investment where people buy vacation properties or second homes to be with family or friends or pretty scenery is taking place here in Canada too from other countries. People buy cottages up in the Muskokas for the pristine lakes and the access to nature.
But today’s foreign investment is much more than that.
Foreign investors also buy properties to make money. They rent out condos and houses. They buy properties to flip at a later date. And many buy properties as a place to simply park their money. They may never even step foot in their purchase property. When you come from a country that has an unpredictable economy,
Canada is an appealing place to park your money. The economy is stable and diversified and the county is a safe and predictable place.
On the more criminal side of things, some foreign investors (and Canadian criminals too) use Canadian real estate as a place to launder and hide illegal funds.
To be honest, if I was a foreign investor with enough money, I would consider putting some money into Canadian real estate. Right now it is easy to do. Foreign investors have poured into Australia and New Zealand, mores than in Canada, but they have created stricter rules for foreign investors in those countries. They also love the U.S. right now because of the recovery of their real estate market. In Vancouver, foreign investment comes largely from Asia.
Here in Toronto it is a bit more diversified with investment from the Middle East, Europe, the United States and Asia. In my experience, I have had some foreign investors express interest in properties I have had for sale, but I would not say that this is the norm. In fact, most of the people that come through the neighbourhoods where I work are Canadian citizens who work in Canada, and have no plans of returning to their homelands if there were not born here already.
Still, foreign investors may be the new focal point for the Federal government.
You see there has been some pressure on the Feds to do something about the stubbornly buoyant markets of Vancouver (up 35% in value on average from last year) and Toronto (up a slightly humbler 15% from last year). Though Vancouver and Toronto are often pointed out, markets are also up in Victoria, Hamilton, Oshawa and Kitchener. Prices are down in other parts of the country. To no one’s surprise, Edmonton and Calgary are down in Alberta because of the oil slow down. But prices are also down in Ottawa, Montreal and Halifax.
This means the Federal government is in a tricky spot. They are under pressure to put the breaks on the Vancouver and Toronto markets while not causing downward pressure on cities that are already slipping in price.
Most of the levers and pulleys that Federal government have at their disposal would effect all Canadian real estate markets in all cities and towns. If they raised interest rates, for example, it would cool off the real estate markets of hot cities but may cause too much downward pressure on the cities that are down from last year.
So, it looks very likely that the Federal government will address the high prices of Toronto and Vancouver by addressing foreign investment. It is true that foreign investment would be much higher in Vancouver and Toronto than in Halifax or Edmonton. So if this tactic worked, it would aim to bring down prices in targeted cities with hot markets.
The deputy chief economist Benjamin Tal has declared that properly designed taxes for foreign investors who have no intention of living in Canada could discourage foreign investors in Toronto and Vancouver and possibly cool the real estate prices in these cities. So, I’m pretty sure this is coming soon.
Other countries with much more foreign investment like Australia have taken it a step further by only allowing foreign investor to purchase in new developments so they can help generate local jobs in construction.
As far as Canada is concerned, the million dollar question is: Would it work? Would a tax slow the flow of foreign investors to Canada?
I think this kind of thing could have some effect on Vancouver where I believe there is more foreign investment than in Toronto. How many times have you heard of the condos that have no lights on because very few people actually live in a Vancouver condo? Then there are the luxurious neighbourhoods where the lights are off on several houses on the block because no one lives there.
I’m not sure if the effects will be as strong in Toronto. The kind of scenario playing out in Vancouver does not exist in the same way here. We don’t have those kinds of problems. As far as a tax on some foreign investment is concerned, it may have some effect in some Toronto neighbourhoods, but in most downtown areas I would suspect it won’t make a huge difference.
Prices are high in Toronto for other reason that have nothing to do with foreign investment.
The lack of new house construction, the limited transit system to get folks in and out to the suburbs quickly, the desire to live here, all contribute to Toronto’s higher prices. I’m not saying that Toronto prices can continue with the gains we have seen over the past several years forever, but I’m not sure if any proposed ideas to slow down foreign investment in Canada from the Federal Government will have the impact that is intended here in Toronto. If all goes as planned, I guess we’ll find out!