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 MortgageBrokerNews.ca. “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.”