If you’ve bought or sold a home in Markham, or anywhere in Ontario, you’ll be familiar with Ontario’s provincial land transfer tax (LTT). It’s a tax on the price of a real estate transaction payable by the buyer. Charged at different rates for different real estate values, from .5% up to $55,000 to 2% above $400,000, the LTT adds $16,475 to a $1,000,000 home.
Passed into law in 1989, the LTT was never popular, but has become an accepted part of every home purchase. In 2008, Toronto got its own LTT, called the Municipal Land Transfer Tax (MLLT), that adds an additional $15,725 to a $1,000,000 home.
So unpopular is the MLLT that homeowners and buyers in Markham and across Ontario breathed a sigh of relief late last year when, after some municipalities started talking about their own MLLT, the province gave assurances that it wouldn’t extend the MLLT outside of Toronto.
While governments love LTTs because of how much revenue they can generate, real estate professionals and anyone in the real estate market see them as adding more cost in an already high-priced real estate market.
BC’s Tax on Foreign Real Estate Buyers
Imagine, if a tax that adds $15,000 or $16,000 to the cost of a million-dollar home caused so much concern, how concerned would we be about a tax that adds ten times that amount.
It’s been difficult to ignore the regular news about Vancouver’s booming real estate market. Even Toronto’s record levels pale in comparison to Vancouver’s, where the average cost of a residential property (including all types of homes) was $930,400 in July, 2016, up 32.6% from a year earlier. In Toronto, the average price of all homes was $709,825 in July, up only $16.7%.
While there may be many reasons for the difference in how the two markets perform, one that is easily identifiable is the percentage of real estate purchases made by buyers who are not Canadian citizens or permanent residents.
In June, 2016, the BC Finance Ministry reported that some areas of Greater Vancouver, including Richmond and Burnaby, had rates of sales to foreign buyers that were well over 10%. While the real estate sales to foreigners in Toronto aren’t as closely tracked, it’s estimated to be between 2.5% and 3.0%.
With the price of even small condominiums outside the range of affordability for many Vancouverites, especially first-time buyers, the BC government passed the new 15% tax on foreign buyers of real estate in hopes of keeping home prices in check.
So What Does the BC Tax Have to do With Markham Home Prices?
The sense that most real estate professionals have is, faced with such a significant added cost to buying a home in Vancouver, many of those buyers will look for homes elsewhere in Canada where there is no foreign buyers’ tax.
Toronto is the second hottest real estate market in the country, and Markham’s real estate generally outperforms other communities in the Greater Toronto Area. That makes Toronto, the GTA and, in particular Markham, which prides itself as Canada’s most diverse community, inviting targets for those foreign real estate purchases that will likely be leaving Vancouver due to the extra tax.
The extra influx of foreign buyers, who tend to buy higher-end homes, into a market that is suffering a supply shortage of detached homes, will very likely boost home prices even more than they have been recently. That prospect has many market-watchers predicting that Ontario will eventually have to institute a foreign buyers tax too, and the provincial Finance Minister, Charles Sousa, has said the province “will be looking very closely” at the BC tax.
But no one knows for sure. BC’s new tax just came into force on August 2nd and the effect hasn’t been fully felt or measured. If you’re looking to buy or sell a home in Markham, Richmond Hill, Stouffville or anywhere in York Region and the GTA, it’s best to talk to your real estate agent for advice that’s suited for your personal situation.