Broker: Look to China for ideas on cooling market

by |
Hong Kong has found a novel way to cool its housing market and one broker believes a similar initiative could do the same in Canada.

“It’s actually very good; it’s called ‘stamp duty’ but it’s basically the same thing (as a land transfer tax): The way they do it is they charge similar to what the provincial government charges here, about two and a half per cent every time you purchase a piece of property,” Omer Quenneville of Centum Regal Financial told “What gets really interesting is if you do not have a Hong Kong address – in other words a foreign investor – you have to pay an additional, I believe it is, 18 per cent.

“So all these foreign investors who are pushing the market up and making a bundle would have to pay a significantly higher land transfer tax.”

Hong Kong’s housing market is similar to many markets in major Canadian cities: It has traditionally remained overheated despite government intervention. And with foreign investors playing a significant role in propping housing prices, Quenneville believes taxing them will alleviate some of the pressure on the market – and local homebuyers.

Toronto’s overheated market, in particular is popular among foreign investors; the CMHC estimated foreign ownership to account for 25 per cent of Toronto condo ownership, others believe it to be quite higher.

“We think the number is closer to 50 per cent,” Toronto development consultant Barry Lyon told the Toronto Star following CMHC’s year-end report. “The data they (CMHC) are using has some shortcomings. It’s only part of the story.”

And while homebuyers in the GTA are currently subject to a double land-transfer tax, Quenneville believes the structure of the tax should be reworked to focus on taxing foreign investors instead of residents.  

 “I think that as long as you’re a resident of Toronto … the one land transfer tax (should be) good enough,” Quenneville said. “I really do think that it would loosen up the market for the ordinary person and make it easier for them and it will actually penalize the people who are really pushing the market up and making it unreachable for the average person.”
  • Kevin on 2014-02-21 12:08:21 PM

    That is fine if you have a land transfer tax. Alberta does not.

  • Angela Wong-Liao on 2014-02-21 12:26:12 PM

    I fully agree for additional land transfer tax for foreign investors because it help our local Canadians to becoming home owners if the real estate prices dropped

  • Anthony C. on 2014-02-21 1:10:52 PM

    More taxes...???

    Sorry people, but taxation is not the answer to all our woes...foreign investors already pay federal taxes on real estate sales if they are in fact a non-resident...

    If we are speaking of the true definition of a non-resident (for tax purposes if you have not lived here for at least 183 consecutive days in the past year), one must apply to the CRA for something called a Certificate of Compliance.

    In general, they need to pay 25 per cent of the capital gain on their sale in order to get the certificate.

    If the certificate is not received prior to closing, builders or vendors must insist on a holdback, typically 25 per cent of the entire purchase price, until the certificate is in fact produced. (In some cases the holdback amounts to 50 per cent of the purchase price.)

    So if slowing down the market by stifling investment is in your opinion the way to go, then by all means push for this...however, I rather enjoy knowing that foreign investment is coming into Canada. Additionally, inflation is on the rise and therefore rates will eventually increase and the natural progression of a higher cost of funds will evidence fewer sales and thus devalue real estate...

    Slow and steady periodical erosion of value due to more natural economic occurrences is in my opinion a more pragmatic outcome than cutting off the arm which fed and made the body fat in the first place...

  • Omer Quenneville on 2014-02-24 12:51:29 PM

    Of course taxation is never the answer but the tax is in place and needs to be either removed or modified. As it stands now it is more a penalty than a tax.

  • Paolo Di Petta | on 2014-02-25 2:58:31 PM

    The real irony here is that Land Transfer taxes really haven't helped in Toronto - in fact, they've probably contributed to the higher prices as sellers want to recoup their costs.

    The only way to fix this is to end cheap money and to incentivize principal repayments (on Owner Occupied only) with tax credits. This will make all this leveraging less profitable, especially for investment properties.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions