Episode 4 – My Response to the Ontario Fair Housing Plan
Welcome back to Alexjwilson.com and episode 4 of my journey of growing $39,300 into a million dollars. Last week, we talked about the fundamentals of the Toronto real estate market and why it’s poised for long-term growth. The reason I talked about this last week is that I wanted to set us up today to talk about my reactions to the Ontario’s Fair Housing Plan and it’s impacts on the market.
First: 15% Foreign Buyer Tax:
The foreign buyer as defined by the act, is someone that does not have Permanent Residence/Landed status or is not a Canadian citizen. It doesn’t apply to non-residents that are Canadian Citizens. If you’re living in another country and are a Canadian citizen, it does not apply to you.
Other exceptions include:
• if you are a foreign student studying in Toronto for two years
• if you are here on work permanent and you’ve been working here for a set number of years.
Beyond this, I can tell you that there is very limited foreign buyer activity in Toronto. When you look at pre-construction sales centers and you see many individuals of different ethnicities, talking different languages and that have names that look different from an Anglo-Saxon name. This does not make them foreign buyers. Toronto is the most international city in the world. Over 51% of our population is foreign. If over 51% of our population was born in another country, doesn’t it make sense that pre-construction sales centres are made up of visible minorities? These are individuals that are buying their first properties here in Canada, or buying an investment property here in Canada. Those are the individuals that are in the sale center. It doesn’t mean that they’re a buyer from overseas. When they’re coming from their international country and relocating here to Canada, they’re bringing their money with them as well. They’re investing their money into Canada and specifically into real estate in Toronto.
I know this because I look at the names that I sell individuals to and I look at their driver’s license. They’re from Canada. I speak with developers and when I speak to them their buyers are from Canada. It’s not buyers from overseas that are purchasing these properties. I really need you guys to get that out of your head. There is not a foreign buyer problem here in Toronto. It’s new immigrants to Canada that are bringing their money into Canada, which is a good thing. Money going in good, money going out is bad. They’re bringing their money into Canada and investing in Canada. It’s a great thing for our Toronto economy.
Second: Vacant Property Tax:
If we look at condos, there are no vacant condos. These condos are in the open rental pool being rented out to individuals that are looking for spaces in Toronto. There is not a vacant property issue here in Toronto. These units are active especially in the Downtown Core. You can look at the buildings; there are people in the elevators. You can speak with property management; there are occupants for all the units in the buildings. There is not a vacant property issue here in Toronto. It is really an irrelevant tax for the condo market.
Third – Rent Controls:
Previously, if a unit was built after 1991, we had the discretion as an investor or a landlord to increase the rent to whatever we wanted at the end of a lease term. Now, we don’t have that ability anymore. They’ve set a specific rate that we’re going to be able to increase our rents. This is going to work out in the long-term for landlords.
Number one, it’s going to decrease purpose-built rental buildings. That’s going to decrease the rental inventory coming on the market.
Number two, tenants that have locked into today’s rental rates therefore they are going to stay in units longer. There is going to be less turnover of tenants going from unit to unit. The reason being is that since they’re locked in at yesterday’s market rate because of the fact they’re locked into a lower rate. Why would they move into a similar unit at a higher rental rate?
What this means is our less than 1% vacancy rate in downtown Toronto is going to be strained even more. We will have less rental inventory coming on the market from the purpose-built side. We will have less rental turnover from existing inventory. New condo buildings coming to the market are going to be at a higher rental rate because there is going to be a supply and demand issue. With even less rental supply coming to market and with continued population growth rents are going to go up for these new rental properties. Landlords will also be less inclined to negotiating the rents knowing that the rent they accept will be the rental amount moving forward. They are going to be very firm on their rental rates on these properties.
For full transcript go to www.alexjwilson.com/episode4
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