For a number of months now, I’ve been saying that the government is going to intervene into the housing market in the GTA.

Less than a month ago I wrote an article, cheerfully called The End is Nigh  where I recapped what I had been saying and reiterated my belief that the government would be stepping in with a number of changes.  When that happens, I said, we will see a shift in the market.

I don’t mind telling you that this didn’t go well with everyone.

Realtors I had known for years called me a fool.  One even called me a ninny.

People I walked by on the street muttered and glared at me.  One old woman made the symbol of the evil eye at me.

While I was strong on the outside, on the inside I worried.

Was I in fact right?  When I advised buyer clients to stay calm, a shift was coming, was that the right thing to do?  With my seller clients, when we discussed timing and I raised the issue of coming changes, did I push them to list earlier for no reason?

It all came to a head yesterday when the Ontario government announced the Ontario Fair Housing Plan.

Billed as a “comprehensive package of measures to help more people find affordable homes, increase supply, protect buyers and renters and bring stability to the real estate market”, the OFHP is a real mixed bag.

I have been adamant in my prediction that the government WILL be introducing a foreign buyer’s tax. So adamant in fact, that I have staked my reputation on it.  No snickering please, I do have a reputation.

I said we would have a foreign buyers tax (FBT) this year of 15% on the purchase of a house by a non-Canadian citizen or permanent resident, just like it was implemented in the Greater Vancouver area, starting in Vancouver and going as far away as Langley, located 42 KM away.

Was I right?  Sadly no, there is no FBT coming to Ontario.

Mind you, we do have a Non-Resident Speculation Tax (NRST), which is a 15% tax on the purchase of a house in the Greater Golden Horseshoe (GGH) by individuals who are not citizens or permanent residents of Canada.  Totally different than a FBT because..um..it has different initials.

What’s the Greater Golden Horseshoe you ask?  It’s a giant swath of land that includes not only the GTA but as far as Peterborough to Waterloo, Orillia to Niagara.  Here’s a handy map for you.

This NRST is the first of the 16 measures in the Ontario Fair Housing Plan.  For a full list, you can check this out.

While what the Ontario government is doing is interesting, I think it’s more important how it’s going to impact you.  I’ve broken the impact down for six key types of people.

  • Sellers
  • Buyers
  • Renters
  • Landlords
  • Foreign Purchasers with Bags of Cash
  • Home owners who plan on leaving their house only in a Pine Box

 

Let’s get to it.

Sellers

You will notice that the description of the Ontario Fair Housing Plan doesn’t mention you.

It’s a “comprehensive package of measures to help more people find affordable homes, increase supply, protect buyers and renters and bring stability to the real estate market” and that ain’t designed to help you.

Here is my take on how the OFHP is going to impact you as a seller.

In the short-term, we will see a lull in certain pockets and types of activity.  Regardless of when the OFHP is passed or what it looks like in its final form, the announcement of it’s creation will cause some buyers to hold off.

  • Who will we see less activity from?
    • The average Canadian buyer who the OFHP is designed to protect will become a bit pickier in their choices. Rather than “I’ll buy anything before I can’t afford nothing”, these individuals will buy if it fits their needs and the price is reasonable.
    • Small home builders / renovators / flippers will focus their attention on projects that can be completed quickly. Sales of properties that are basically only land value will be less appealing to those who need the time to tear down and build a new home to sell.
    • Foreign purchasers will suddenly face a 15% premium on their purchasers and some will not buy in the GGH anymore. I say suddenly because the Non-Resident Speculation Tax is to be effective as of today (April 21, 2017), upon the enactment of the amending legislation.
  • Who will we see at about the same level of activity?
    • Buyers who plan on tearing down an existing house and building a new home to live in will continue to be players in the market. They aren’t worried about if the market is in a different place in a year or 18 months from now because they don’t intend to sell the home they are having built.
  • Who will ramp up their activity?
    • Buyers who are worried about what the OFHP is going to do to mortgage rates and mortgage financing rules are going to be eager to take advantage of the changes in demand before their pre-approval or the economics of their purchase change.

In short, the Ontario Fair Housing Plan is going to create some changes in buyer behaviour over the next couple of months.  I have seen in the past that whenever the government makes changes, there are some ripples in the market as buyers and sellers figure out what it means.

If you are selling, we need to stay the course and recognize that the majority of buyers in the market are in the market now for a reason.  They need to move (for work, for life changes, for financial reasons) and your property will still sell.

If you are considering selling, now more than ever you need to hire a Realtor who knows what they are doing with your property.  This means pricing it properly, marketing it effectively and negotiating it aggressively.  While it was always a bad idea, hiring a discount Realtor who just lists it on MLS and hoping people will pay anything you ask is really a bad idea now.

Buyers

The Fair Housing Plan is really quite focused on you, so you should feel pretty special.

Well, if you’re a Canadian citizen or permanent resident looking to buy, you should feel special.

If you’re a foreign investor or just an investor in general, don’t feel special.  You can feel targeted, maybe, but that’s not really the same as feeling special.

I am working with a number of buyers who fall into the Canadian citizen or permanent resident looking to buy a home to live in and I think the OFHP is good news for you, particularly in the short-term.

Buyers in the market right now are going to see some interesting opportunities over the next coming weeks and month.  The market will need some time to adjust to the changes and uncertainty will mean some people will hold off.

As a buyer, you will face less competition from foreign buyers.  As with any government measure, there are ways around the restrictions but the simple days of being a foreign buyer who is able to buy a property in the area without paying a 15% premium are pretty much over.

Much like I’ve been saying to my buyers over the past few months, timing is crucial.  I’ve helped some buyers buy townhouses and condos this year where we actually got them at a reasonable price.  The same buyers didn’t buy earlier properties because they weren’t reasonable.   We need to always keep the big picture in mind.

The opportunity for my buyers over the next few weeks and month is that it gets a bit easier for me to find you those opportunities.  So really, it’s a win for me as I can stop saying “No, that’s too much, let’s keep looking.”  Hmm…I’m actually pretty happy now that I think about it.

Renters

With a number of the points in the OFHP focused on increased housing supply and implementing rental controls, things are overall quite positive for renters.

That being said, investors who have been buying over the last few years have seen their costs to acquire properties increase dramatically.  Remember, investors don’t get a discount because they are buying the property as an investment.

At the same time as prices have risen, the costs of financing investment properties have also risen, with CMHC implementing changes that make lenders pass on higher costs to investors.

If we see a increase in mortgage rates over the next few years, except to see lots of landlords decide to exit the rental market and sell their units.  With no ability to raise rents to cover increased mortgage costs, many will find their previously profitable investment is now costing them money.

If you are a renter and plan to stay that way for a number of years, watch out for new buildings with fancy features that you couldn’t afford to buy.  At some point soon, your landlord may tell you they are selling the unit.

If you are a renter who is saving up to buy, this could work out quite nicely for you.  As time passes, consider talking to your landlord if they are thinking of selling, because your rental unit could become your owned home.

Landlords

There is a lot of noise being made about rent controls and how it will prevent you unscrupulous bastards from squeezing the poor tenants who are paying down your mortgage.

In my experience, when a landlord has a good tenant, they keep them at the same rent or only do modest increases.  The clear majority of investors want a passive, no hassle way to grow equity in the property.

When we hear about tenants having rents doubled or other significant increases, they almost always live in rental buildings where corporate landlords have the staff and infrastructure to find new tenants and bear any vacancy costs.

As it stands now, even in buildings where rent control already exists (where the building was built or came on the rental market before 1991), you can raise rent when a unit is vacant to whatever the market will bear.  You can’t do that to an existing tenant but if they are a good tenant, then you don’t do it anyway.  When they eventually leave, you adjust the rent up.

There are other approaches that allow landlords to mitigate some of the rent control issues, such as establishing the lawful rent at a higher rate and giving discounts for prompt payment.  I predict we will see more of that in the future.

If you are a landlord and you have a property with tenants paying below market rents, you may not be able to change that much.  If you had wanted to though, you likely already would have done so.

If you are considering buying an investment property or are in the market for one now, the changes shouldn’t make you walk away from the idea.  Rental properties remain a very effective, passive investment that allow you some control.

Foreign Purchasers with Bags of Cash

The glory days for buying in the Greater Golden Horseshoe may be over.  Have you considered London, Ontario?  Reasonable prices and good rental rates.  I know a great agent there if you’re interested.

In all seriousness, these buyers can still buy in the area and a 15% premium may not faze some of them.  If the market becomes more affordable for everyone, that “everyone” includes foreign buyers.  If we see a softening in the demand or an increase in the supply (or both), then more reasonable prices for buyers also included foreign buyers.  They may happily pay a 15% premium on their purchase but avoid a 30% over asking price in a seller’s market.

Home owners who plan on leaving their house only in a Pine Box

You, good sir or madam, can watch the market antics with bemusement and a feeling of contentment that you aren’t part of this insanity.

Home owners who make their plans to sell or buy based solely on their life stage are invariably the calmest of my clients.  When you are making the decision to sell because you need to do so, the timing is something that you don’t control and what happens, happens.

When you’re in need of a Realtor to help you with the next stage, make sure you choose one who knows how to sell and buy real estate in any type of market.

Let me finish up this lengthy article with a simple request.

Whether you are buying or selling, investing or renting, it is crucial you work with a Realtor who understands what is going on in the market.  If you, or someone you like, needs real estate help, please get in touch with me.  I’d love to be responsible for what comes next.

Regards,

Jeff

JL.COM-Design

INTIMACY GRADIENT

Unless the spaces in a building are arranged in a sequence which corresponds to their degree of privateness, the visits made by strangers, friends, guests, clients, family, will always be a little awkward.

On many occasions I’ve had clients comment on how they don’t like when they walk into a home and there is no separation between the entrance area and the living room or kitchen.  The public areas (such as where we open the door when someone knocks) need to be separated in some way from the private areas (where the clutter and items of our everyday living are located) for us to feel comfortable.