I read an interesting article in (1) Canadian Business during the Canadian federal election, by Michael McCullough, Sept 30th, 2015.
The meat of the article was about how the political leaders viewed the decoupling of the Vancouver and Toronto Real Estate Markets from other Canadian markets. Whether or not you think either one of these political figures have any plausible ideas on the matter, I find the topic very interesting. If you are renting out multiple properties in Texas, hiring a company from Dallas property management.
Decoupling is a fancy term for the growth trend in the Vancouver and Toronto condos for sale, which have been so hot over the past decades. The trend in both centres is out distancing the growth trend of most other Canadian markets, making it difficult to fiscally govern the two major centres the same way as the rest of the country is managed. In effect, we now have two distinctly different economies within our Canada.
“The Teranet–National Bank House Price Index found that prices increased 9.7% in Vancouver and 8.7% in Toronto last month compared with a year earlier, whereas the rest of the country averaged just 0.2%. Affordability is worsening, too. In a recent report, RBC concluded that servicing the mortgage on a two-storey house (assuming 20% down) would cost the average Toronto household 67.5% of its pre-tax income. In Vancouver, it’s an eye-popping 90.6%.”
I would hazard a guess that this decoupling is not just a Canadian trend and probably exists in many of the major real estate markets throughout the world. How do governments cool down these trending cities while not stifling growth in the other markets?
The easy answer would be to raise interest rates, but the Bank of Canada is hesitant to do so while we waffle around in this zero growth, quasi recession -like economy. The housing market is one of the lone stars in this recent downturn in the economy, creating over 200,000 jobs alone in the Greater Toronto Area (GTA) in the past year. Do we dare cool it down? The Bank of Canada has been careful in its assessment of interest rates and has resisted a rate hike, fearing what effects such a hike would have on our shrinking economy. The Bank of Canada has tinkered with its borrowing policies and has made it more difficult to borrow money, especially on investments of over 1 million dollars.
Another scheme is to download the income tax burden by allowing municipalities to increase taxes which would be funneled towards the federal coffers, while offering income tax relief. We have heard grumblings about the raising of the land transfer tax by the municipalities. In effect, those that own real estate would be penalized and the proceeds going to those that do not own real estate. I might sound like a right wing Republican here (I’m not), but that scares the hell out of me. Why should we punish those that own real estate? What guarantees would we have that the money would find its way into the correct pockets?
Some countries, for example: Singapore, Australia and New Zealand have put into place a tax on foreign investment in an attempt to cool down the hot markets. Foreign investment is one of the main reasons the Toronto and Vancouver markets are so hot. If Canada was to implement a similar levy, it would not affect the common Canadian tax payer. I kind of like this idea. Let’s face it, there is no big secret, these investors are coming from China, India, The Middle East and Russia, many of them mysterious and with no fixed Canadian address. Let them pay a premium on investments over one million dollars, farmland and single detached homes, like Australia has done. The downside is that it smells of discrimination. The most common question I hear from a foreign buyer is: “what taxes are applicable to foreigners?” Most are surprised when I say: “none.” They expect it.
It would be interesting to see what my blog readers think and if they have any other ideas.
How does this decoupling effect Niagara on the Lake? We live in what is quickly becoming a retirement community – the Old Town especially. A large portion of our buyers are coming from the GTA where they sell house fast Boston at high prices and purchasing comparable properties in NOTL for a lot less. The ultra-hot GTA market is fueling this demand for moderately priced homes in Niagara, driving our prices up. Even though, the NOTL market doesn’t completely mirror the Toronto market, we tend to have a selling spree a month or so after the GTA gets hot. I would say that we are “less decoupled” than many of the southern Ontario markets.
What do you think?
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