What Today’s Announcement Means To You
You’ve probably heard from every person in your life right now from your dentist to your aesthetician all excited about real estate being affordable again. I’m sorry to burst your bubble but what you saw today was nothing more than a knee jerk reaction to current market conditions with zero regard for WHY things are happening. Without any consideration for the “why” there cannot be a solution. Hint: there is no solution to the affordability “problem” without completely destroying the economy (think 80’s/90’s interest rates) in which case most won’t be able to buy anyway. But I digress. Let me show you the major changes that took place today.
Premier Wynne started off by telling us about how she loves immigrants and there are more folks moving to Ontario than ever before. Wynne made it very clear that these measures aren’t an attack on hard working forks that want to move here and live here. I understand that. You want to make sure those who are contributing to our economy are being taken care of. Does a foreign buyer not also contribute to our economy by bringing their money here? Buy supporting the developments that employ tens of thousands of people each year? I must digress again. Let’s get to the point.
Non Resident Speculator Tax (NRST) Of 15%
Not a surprise here. A case of monkey see monkey do. But usually monkey do what works not what barely did anything over there Vancouver other than freak people out for a few months and then they started buying again. But, this is the case and we’ll deal with it. What Ontario did that BC didn’t do is offered a bunch of Non Resident Speculator Tax (NRST) exemptions. Let’s focus on them. The NRST applies to: Non Canadian, non permanent residents and non Canadian corporations buying residential properties. You are eligible for a NRST rebate if you meet one of the following criteria.
- Does not apply to commercial properties at all no payment or rebate required
- Skilled workers in Ontario Immigrant Nominee Program and Refugees
- Anyone obtaining permanent residency within 4yrs of purchasing
- International students enrolled full time for a minimum of 2 years
All of these folks will receive a 100% rebate of the NRST but it may be a barrier upon purchasing if one needs to come up with an extra 15% and then wait months to get it back. We’ll see how this plays out.
How will the NRST affect resale homes in Toronto’s urban communities? It won’t. Affordability problem not solved. But it will take a bit of the wind out of the pre construction condo sales in the short term until foreign buyers realize that registering a Canadian Corp is an easy way around this. (shhhh don’t tell anyone)
Regulating Assignment Sales
Now this measure could become an issue for folks looking to flip some paper. If you don’t know what an assignment is, read this and come back. We’ll wait. Now that you’re an expert on assignments we can dig into this a little. In previous years it’s been very difficult for the CRA to monitor assignment activity. Many people were getting away with not paying taxes on profits from assignment deals since it’s very easy for them to fly under the radar.
This changed in 2013 when the Feds started cracking down on folks by cross referencing developers original papers with city records to see if names matched up. When they didn’t, an audit would be triggered and Assignors had to pay up. CRA’s been getting their money and now the Provincial/Municipal governments want to get in on the action too. Minister Sousa referenced “paying Land Transfer Tax” on this type of transaction but we don’t see that happening since no land is actually transferred.
You’ll have to stay tuned to see what they actually do here but we suspect there won’t by much else other than some reporting requirements to ensure CRA get’s their cheddar.
Rent Controls For ALL
Felt like I was on the Oprah show getting “YOU GET A RENT CONTROL, YOU GET A RENT CONTROL, EVERYONE GET’S RENT CONTROLS!!”. Prior to today (this comes in to effect today) any unit that was not a rental unit before 1991 was exempt from rent controls. This was part of the legislation by the Harris government that was put in place to encourage developers to build rental stock. This also meant that if you were sitting in your cozy apartment your landlord could hike the rent as much as he/she wanted. Pretty much all condos were like this. Fast forward to 2017 and one landlord gives a 100% rent increase notice to their tenant who happens to be a CBC reporter and all hell breaks loose. All of a sudden we have a sweeping problem and rents are going up 100% across the board. Not true.
Anyway, the “people” got their way and the Wynne government, effective immediately, reinstated pre 1991 rent controls for ALL rental units capping the allowable increase at a whopping 2.5% (just a hair over inflation).
Landlords hear me out. If you need to increase your rent beyond the allowable 2.5% it’s still possible. You just need to jump through a few more hoops now to do it. Call us and we’ll tell you how.
Developer Incentive To Build Rental
While rent controls aren’t exactly ideal for developers, the Province did give a little to encourage more purpose built rental. Any developer wanting to build rental will now have a much lower property tax bill to pay that’s more in line with a typical residential property. Not a massive savings but could help incentivize some to continue to build rental. Did you know that all of the Honest Ed’s site is slated to be rental? I wonder if any of these changes is going to get them to reconsider and build condos instead.
There will be decreased development charges and/or rebates for developers building rental stock. This would also carry over into folks with single family homes that want to build second suites or basement apartments. Will make that process a lot less costly and more attractive.
As added protection for tenants, the Province will also be creating a Standard Lease Agreement. As if tenants needed more protection but there you have it.
Vacant Property Tax: Land and Existing Property
Not a surprise and not a big problem here in Toronto either. We don’t know how much this tax will be or whether it will be enough to convince property owners to either sell or rent adding to the available property pool. We shall see how this plays out. I suspect there isn’t enough data to make this a reality yet but one of the changes speaks to collecting more data so they’re working on tightening up their database to more accurately reflect who’s buying/living in/leasing properties.
Developing Existing Provincially Owned Lands
Wynne specifically mentioned Grosvenor Street and West Donlands. Specifically 26 & 28 Grosvenor Street. Currently home to the YMCA and an ideal parcel of land to develop to contribute to the supply of new homes. What’s most exciting is the Province owns a bunch of land in the West Donlands (Canary District area) so it’ll be great to finally get those developed. I’m not sure if these lands are going to be slated for community housing or general housing stock but we’ll find out soon enough. Whatever they do, two parcels of land is merely a drop in the bucket and will not do anything to solve the unsolvable affordability “problem”
There were other proposed changes and we’re actually quite excited about potentially changing the way the bidding war process goes down. We’ll report on those as they become more clear. For now, if any of this is unclear, please give me a call and I’ll explain. As I said. If you’re thinking stuff is all of a sudden affordable again…it’s not.