Office: 1-416-698-2090

E: baldo@baldominaudo.com

Real Estate and Business

Reality About Foreign Buyers

Information circulating about the significance of foreign buyers on Toronto home prices has been released from many sources. There are strongly opposing viewpoints and some of them are wrong. In this post, I will focus specifically on the impact, or perceived impact of foreign buyers on Toronto real estate.

Hot Toronto Housing Market
Toronto Housing Market

Toronto Home Prices

Toronto home prices have increased aggressively for years. Torontonians wanting to buy their first home are frustrated that prices have gone beyond their reach. The pressure is on as many would-be buyers are turning to the government for answers and solutions. Many believe that it is foreign buyers that lat are pushing up prices beyond what the average family can afford. In fact, as families look further and further to the outskirts of the GTA prices everywhere seem to be skyrocketing.

Tax Grab

The Ontario government is now looking at passing a Foreign Buyers Tax in reaction to pressure from Ontarians. Some believe that it is another move by Kathleen Wynne to extract more taxes because she has not explained how she would use that money to make housing more affordable for tax paying Ontarians. So, the assumption is that it is just another tax grab.

How Significant is Influence of Foreign Buyers?

The Real Estate Industry has been claiming that foreign buyers are only representing 5% of the buyer group. Then they go on to say that a foreign buyers tax is unnecessary and would hurt the real estate market. If in fact, foreign buyers are only 5% of all buyers, then a tax on them shouldn’t really affect the market. So, why are they so concerned.

To begin with, there is really no way of knowing how much of the overall market foreign buyers represent because there is no tracking or reporting in place. Even if the activity was being tracked, the individuals may not necessarily be accurately declaring their transaction. I will discuss this in greater detail in a bit.

What’s Happening During Bidding Wars

Having represented clients in several bidding wars over the last year, I was able to gauge who the other potential buyers were. By defining ‘Foreign Buyers’ as individuals or families with their head, who spend most of their time overseas or have a significant, if not all of their business activities overseas. Based on this definition, I can comfortably state, that in regards to the deals I was involved with, foreign buyers were a significant force. In some cases with at least 12 potential buyers they represented over 50% of the offers.

However, that’s not the most important thing. The real reason I saw some home selling for what seemed unjustifiable prices was something that most people would not expect. The foreign buyers were offering bids way beyond what was necessary to get the home.

For example, in one situation involving about a dozen offers. The winner offer was $100,000 (10%) over the next highest offer. I was told it was a foreign buyer who wanted to buy a home specifically in that neighbourhood because of the high percentage of Chinese living there and the strong reputation of the local school. I don’t know if the buyer realized how much more he was paying. I also don’t know how much and what kind of research the buyer’s realtor undertook and shared with the buyer.

This is just one example of how foreign buyers have, unintentionally, pushed up the prices, especially in some neighbourhoods.

Beating The Tax System

Now, back to not accurately declaring their real estate activity, let’s say, for example, a student wants to come from overseas to study at an university in Toronto. Having no money, his family friend could give him some or all of the money so the student can purchase a condo in his name and live in it for the three or four years. The friend could then have a legal side agreement where it is understood that the friend owns the condo, though it is in the student’s name. Since the student resides in it, when he sells it at a much higher price, he doesn’t pay any capital gains, and therefore, neither does his friend the real owner. The student would do this in exchange for not having paid rent, or paying reduced rent for that period.

This also leaves the door open for money laundering.

A better solution for the Ontario government would be to have a non-citizen buyers tax. In other words, if someone is here for 3 or 4 years as a student, they would still have to pay the foreign buyers tax. To work effectively, the Canadian government would have to do a better job at qualifying, screening and orienting new Canadians.

Rooming Houses

Many homes bought by foreign buyers are converted into student housing on a room-by-room basis. Foreign students don’t declare rent they pay as they’re not supposed to be working and therefore the landlords are collecting rent, which they may not be paying taxes on. There are homes in Toronto with as much as 8 or more rooming tenants. At $800 per room, 8 rooms would produce $6,400 every month. That gives the owners justification for paying much more for the house than say an average Torontonian working in an office and paying full income tax would be able to afford.

AirBNB

The rooming house scenario also applies to AirBNB rentals, which the CRA has already begun to target.

Conclusion

So you see, the whole point of percentage of buyers of Toronto homes that are foreign isn’t what we should be looking at, but rather the impact they have.

The bottom line is that average citizens are upset because they can not afford to buy a home to live in.  In order to earn enough to afford a mortgage at this prices, individuals would be falling into the 54% income tax bracket. Then they pay 13% HST (VAT) on what they spend, which is pretty much all of what they earn after mortgage payments. With a 67% tax and keeping only 33% they simply can’t afford to buy their first home.

On the other hand, they are seeing new Canadians, foreign students and foreign buyers buying homes and prospering. Many are scratching their head trying to figure out how they are doing it. I hope this post will help discover some explanations.

Please contribute your comments and knowledge on the subject.

Baldo Minaudo, M.B.A.

Real Estate Broker in Toronto

Dir: 416-564-0245

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Birchcliffe-Cliffside Neighbourhood: A Bit of Country in the Big City! See what’s for sale.

Cliffside is well-established, family centred neighbourhood located along Toronto’s eastern beaches, close to the wonders of the Scarborough Bluffs. Cliffside has an attractive mix of older style houses (including bungalows, one and a half storeys. and two storeys), well treed streets, a vibrant shopping district along Kingston Road and beautiful waterfront parks. Cliffside was previously known as Mortlake in honour of an English hamlet outside London, England. Use of the Mortlake name coincided with the opening of a post office in the Halfway House Hotel on Kingston Road, which was moved in 1962 and now is part of Toronto’s historic Black Creek Pioneer Village.

The famous Canadian wonder, the Scarborough Bluffs are located within Bluffers Park (down along Undercliff Drive in the Cliffcrest neighbourhood just east of the Birchcliffe-Cliffside neighbourhood). This Marina, Park and Beach provides a wonderful scenic lakefront view the lake, the cliffs and the trails through the shrubbery.

Cliffside Village has home improvement stores, convenience stores, various restaurants, and a mix of small stores, independent retailers and retail chain outlets.

The community of Birchcliffe-Cliffside, as of 2011, had a population of 21,856 occupying 9,185 private dwellings, 54% of which are single-detached houses (compared to Toronto’s average of 26%). The average family income was $73,364, compared to Toronto’s $70,945. A significant 90% of the residents spoke English at home, 73% were born in Canada (compared to Toronto’s average of 49%), and the top 5 ethnic origins are English, Irish, Canadian, Scottish and French.

The historic St. Augustine Seminary has been training Roman Catholic priests since 1910 and can easily be seen with its dome overlooking south from Kingston road toward the lake. The seminary was the first Canadian seminary for English speaking clergy. St. Augustine’s Beaux Arts style architecture and striking dome is a dominant visual presence of a landmark on Kingston Road.

The area west of St. Augustine Seminary evolved as a summer cottage community with the first year-round residences built on Chine Drive (just east of Midland Avenue on the in the present day neighbourhood of Cliffcrest) in the 1920’s. It was these Arts and Crafts style homes that defined the neighbourhood’s character to this day. Most of the Cliffside houses were built from the 1920’s-1940’s with architectural styles that include Cape Cod, Craftsman style bungalows, Edwardian, Tudor and newer, contemporary homes. In the most recent years, the value of homes built closer to the lake have risen considerably, especially along Fishleigh Drive (south end of the neighbourhood) which has truly magnificent views of Lake Ontario.

A great example of a wonderfully renovated one and a half storey house located 35 Ridgemoor Avenue south of Kingston Avenue is presently listed for sale. With two bedrooms on the top floor and wonderful views from the main floor this house has a finished basement with a kitchen, bathroom, 3rd bedroom and separate entrance. The main floor has a gas-burning fireplace insert and also has gas line for the gas stove.

Situated on a large lot with a 78 foot frontage and backing onto a ravine where deer and other wildlife frequent it provides a tranquil setting. There are two decks to enjoy in the backyard amidst towering mature trees. With a deep, attached single-car garage and wide drive there is parking for four cars. A country-like veranda that spans the front of the house, mature trees and thick hedge provide for a great curb appeal and delivers a small-town, country feel in the big city.

The home was renovated about 8-9 years ago from top to bottom. Windows were replaced two years ago along with new garage door, garage door opener. Sewer backflow prevention system was installed in 2010.

This home is offered at $659,900 to sell quickly.

To further information or to view this property, or if you would like to sell or buy another property contact:

Baldo Minaudo, MBA, Broker, Real Estate Homeward Brokerage. 416-564-0245

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