Photo: Jeff Hitchcock/Flickr
Recent government homebuying data for the Greater Golden Horseshoe likely don’t reflect the true level of foreign investment prior to Ontario’s Fair Housing Plan announcement, an economist suggests.
“We have to remember when the data was starting to be collected,” Diana Petramala, an economist with TD Bank, said this morning on BuzzTV, BuzzBuzzHome’s weekly Facebook Live broadcast.
The provincial-government data Petramala is referring to cover the period from April 24th to May 26th and show foreign buyers were involved in 4.7 per cent of the transactions recorded in the Greater Golden Horseshoe during that time.
“It was after (the Ontario government) implemented their 16-measure Fair Housing Plan which also included a 15 per cent land transfer tax on foreign buyers [in the Greater Golden Horseshoe],” Petramala explains.
“So it’s probably not an accurate picture of what the share of foreign investment was before they implemented those regulations,” she says of the numbers, which follow the Fair Housing Plan’s April 20th announcement.
Rather, foreign buyers accounted for 10 to 15 per cent of home purchases in the regional market ahead of the plan’s introduction, Petramala estimates.
While TREB previously commissioned a survey of realtors to gauge foreign investment in Toronto real estate (results released in January pegged the share of foreign buyers at 5 per cent), TD has looked to other indicators.
Economists at the bank zero in on currency and deposits held by foreigners in Canadian banks and compare that to Toronto and Vancouver home sales in dollars.
“The two were very correlated. There was almost a threefold increase in the amount of cash coming into Canada and then a threefold increase in the dollar value of transactions,” Petramala notes (check out a chart of this analysis).
Petramala notes Q2 data is not currently available but that TD will be watching this measure closely.
The bank also looks at the number of home sales per person. “You can get existing home sales because of population growth. We want to look at how much sales activity is occurring above and beyond your normal demographics.”
How Vancouver’s market evolved after BC implemented a foreign-buyer tax for the metro area in August last year can hint at what’s going on in Toronto, too, Petramala suggests.
Foreign buyers represented 5 to 10 per cent of the market prior to the levy in Metro Vancouver, and that number dropped to about zero in the measure’s wake, she says.
Still, there are other factors besides lower foreign investment levels that contribute to Toronto’s recent collapse in resale activity, one that has seen home sales plummet 42 per cent from the March peak, according to TD’s data response to the latest Canadian Real Estate Association figures.
“You had an erosion in affordability, so households had become very sensitive to rising interest rates, and then interest rates went up,” says Petramala.
Speculators, including domestic ones, are also likely stepping away from the Toronto regional market.
“Speculators count on home prices rising,” she says. “If you tax foreign investors, speculators all of a sudden get nervous that maybe they’re not going to get quite the return that they thought they were going to get.”
Rising interest rates should deter speculation moving ahead, Petramala expects.
Last week, the Bank of Canada hiked the key interest rate, which influences the mortgage market, for the first time in seven years. Moving past that 25-basis-point hike, TD is calling for another increase this year and two more next year. “That’s not good for returns for speculators,” Petramala states.