via South China Morning Post
Canada’s plan to cool a red-hot domestic property market by taxing foreign homebuyers who do not reside in the country could upset the industry recovery and further erode international demand, analysts said.
The proposal has gained traction in Prime Minister Justin Trudeau’s government as property agents recorded roaring business and surging prices this year despite the Covid-19 pandemic, suggesting improving sentiment among investors on the market outlook.
Some 461,818 homes have changed hands this year through October, an 8.6 per cent increase from a year earlier, according to the Canadian Real Estate Association (CREA). It was the second-highest January-October volume on record, trailing only 2016, it added.
Prices rose 10.9 per cent in October from a year earlier, the most since July 2017, the association said in a November 16 market update. The unadjusted national average home price rose by 15.2 per cent to a record C$607,250 (US$474,508), influenced by sales in Greater Vancouver and Greater Toronto Area, two of Canada’s most active and expensive markets.
“Some cities remain wildly unaffordable while others are experiencing a bust,” said Natalka Falcomer, executive vice-president for corporate development at Ontario-based Chestnut Park Real Estate, an affiliate of Christie’s International Real Estate. While a foreign-buyer tax could hurt demand, it “does not necessarily mean a curbing in home prices”, she said.
While Canada does not issue official numbers of foreign holders, some industry estimates put them at 5 to 10 per cent of total transactions. Mainland Chinese, including Huawei Technologies chief financial officer Meng Wanzhou, are among the biggest property investors.
They ploughed US$1.1 billion into the market in 2017 versus US$986 million in 2016, according to the most recent data from Real Capital Analytics. Those from Hong Kong fell to US$1 billion from US$1.8 billion over the same period.
The Liberal government is considering the tax to keep a lid on home prices, making them more affordable for first-time local buyers. The measure would be akin to speculation and vacancy taxes imposed on foreign purchases over the past five years in so-called desirable cities. However, no details on the nature or quantum of the proposed tax have been revealed.