November 8, 2016

The Financial Post published an article on September 19, 2016, focusing on some comments by CIBC World Markets deputy chief economist Benjamin Tal.

To begin, Mr. Tal argues that the provincial government has “little choice left” but to enact a 15% tax on foreign home buyers.  This is hardly a novel proposal, as British Columbia as already put a similar tax into effect.  The Vancouver market, previously the hottest in Canada, has cooled off a bit recently.  Mr. Tal recently said that “with other centres taxing foreign investment, Ontario will have little choice but to do the same.” 

What is interesting about the article is that Mr. Tal offers really nothing in the way of support for his argument.  Certainly, no evidence is provided.  I suspect the reason for that is simple:  there is no evidence.  That said, it would seem reasonable to assume that such a tax would do absolutely nothing to correct any problems that currently exist in the Ontario, and particularly the Toronto markets.  The Vancouver and Toronto markets are very different.  Putting an additional burden on “foreign” buyers seems just a wee bit xenophobic, to say the least.

The real problem is the lemming-like stampede to buy houses.  That is hardly fueled by “foreigners.”  Rather, it is fueled by the mentality of “if I don’t buy now I will have to pay much more later.”  I have never understood that mindset, and suspect that I never will.  And that problem leads to another one:  many recent purchasers hold variable rate mortgages. .Why?  Because with interest rates where they are now (and have been for some time) it is by far the least expensive financing option.  For now.

While it is difficult to envision the Bank of Canada hiking rates anytime soon (in fact, a cut may be more likely the next move), at some point that will happen.  When it does there will be many homeowners who will not be able to handle the implications of even a 25 basis point increase in rates.  What is in the system now, is in the system.  Going forward, if governments want to tamp things down in real estate markets, there are far more effective ways to do it than imposing taxes on foreign buyers.

Howard Goodman
President, HG Partners Limited
Director, Private Client Group &
Senior Financial Advisor,
HollisWealth Advisory Services Inc.

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