A few noteworthy points from Premier Wynne’s announcement today on measures to cool the booming Toronto real estate market.
- Tax and foreign investment. The biggest segment that fuelled the increase in Toronto supply was the Pre-Construction condominium market. Because of higher deposit structures and buildings that take 3-5 years to come to fruition this new development is primarily driven by speculators. Torontonians can’t plan four years in advance and wait for their new condo to live in. Historically this has provided the city with 18,000 to 37,000 new units each year over the last decade. Without these speculators Toronto would have less inventory, a less developed city and higher prices. The development that you see today would not exist.
- Banning of flipping on Pre-Construction condominiums by speculators. Currently when you flip a property you are taxed heavily and forfeit your HST rebate, HST is imposed on your deposits and on your net profit. It’s difficult to flip a Pre-Construction property because of marketing and builder restrictions. I’ve been telling my clients for years, don’t flip, if you’re a smart investor this is never the right move. Investors will always make more money by renting for a minimum of one year and save on the substantial taxes that would otherwise be imposed if they were to flip the property without renting it out. This new rule doesn’t change the caption of majority of speculators purchasing Pre-Construction as a majority are not generally flipping and if they are they are already heavily taxed. Personally I believe there is enough demand in our market currently to allow Canadians first option to buy investment purposes before foreign investment. But this is not always the case.
- The 1991 rent control loophole will be removed. By imposing rent controls on properties built after 1991 we are only hurting those that these measures were imposed to help. If you intervene with the investor’s ability to make a better return on their investment they won’t build for the purpose of new rentals. This will only lower the rental supply, deplete market inventory and further drive prices up.
- Incentives for rental property development. What must be understood here is that the price to build a brand new development will always be higher that what we would pay today. Builders can’t build at a lower cost due to the prices of labour and materials. This measure will provide an increased supply of housing but it will not be at a lower price. It may however slow down the rate that rental prices are rising. Do you really think that by the time that these units are built they will cost less than current market value? That’s foolish and naive.
We’ve already seen an increase in units on the market following Premier Wynne’s announcement. If you weren’t planning on selling, you shouldn’t be selling. Don’t let scare tactics influence your decision.