Because Ontario is joining BC with its own foreign-homebuyer tax, will overseas investors move one province over to Montreal?
Desjardins Senior Economist Benoit P. Durocher mulled this question in a recent report, and two other top economists now suggest the levy, meant in part to cool the Greater Toronto Area’s housing market, will have some impact on Montreal real estate.
“At the margin, yes,” replies CIBC Deputy Chief Economist Benjamin Tal when asked whether foreign investors will turn to Montreal. “Will it be a game-changer for Montreal? No, I don’t think so,” he adds.
Last week, Ontario announced it was applying a tax of 15 per cent to non-residents purchasing residential real estate in the Greater Golden Horseshoe, a large swath of Southern Ontario stretching out as far as Peterborough to the east, the Niagara region to the south, Waterloo to the west and Orillia to the north.
The move comes less than a year after BC implemented a similar tax in Metro Vancouver.
Tal tells BuzzBuzzNews that the ripple effects on Montreal real estate from this measure won’t “be huge” because Ontario’s foreign-buyer tax includes a number of exemptions.
The tax will not apply to refugees or nominees under the Ontario Immigrant Nominee Program, an initiative allowing the province to nominate non-residents for permanent residency once a local employer recruits them.
Ontario is also going to offer tax rebates to foreign nationals employed in the province and international students as well. “So the actual number of the people that will pay the tax is very limited, and the number of those that will not be willing to pay the tax is even smaller,” Tal explains.
Marc Pinsonneault, a senior economist at National Bank, which is headquartered in Montreal, says the consensus among local observers is that the city’s home prices will begin to rise more rapidly as a result of increased investor interest.
“There is anecdotal evidence that it even started with the tax in Vancouver, and so why not think that it could now that the same tax is applied in the Golden Horseshoe,” Pinsonneault tells BuzzBuzzNews.
“People [in Montreal] are expecting or preparing themselves for some acceleration,” he adds.
Montreal home prices were up a tepid 3.5 per cent in March compared to the same month a year ago, according to the Teranet-National Bank House Price Index. Although the market is forecast to heat up, Pinsonneault doesn’t anticipate price gains will reach the double digits.
At an annual rate of growth somewhere less than 10 per cent, the National Bank economist says Montreal won’t need a foreign-homebuyer tax of its own. “We’re definitely not in the same situation as Toronto and Vancouver,” he says.
The Quebec Federation of Real Estate Boards says Canada Mortgage and Housing Corporation (CMHC) may be underestimating the share of foreign buyers in Montreal when it pegs it at 1.5 per cent. But the federation suspects it’s considerably lower than in Toronto and Vancouver. For example, 4.9 per cent of transactions in the GTA’s resale market involved a foreign buyer, suggests a fall 2016 survey from the Toronto Real Estate Board.
QFREB says Ontario’s tax may have a “limited” impact on pricing in Montreal. If it does, the federation suggests the activity would specifically target single-family homes in centrally located neighbourhoods as well as downtown condos.
“Activity by foreign buyers in the Montreal area could have an upward impact on property prices in some central neighbourhoods, as this is where they tend to concentrate their purchases,” says Paul Cardinal, the QFREB’s market analysis department manager, in a statement.
CIBC’s Tal says BC’s foreign-homebuyer tax is “one of the reasons why Toronto’s been a bit crazy.” Some investment went eastbound from Metro Vancouver to the Greater Toronto Area after the levy was introduced in August 2016, many experts agree, contributing to year-over-year price increases that last month reached a fevered pitch of 33.2 per cent.
But Tal points out a key difference this time around, one that should keep Ontario’s new tax from having as dramatic an influence on Montreal’s market.
“Toronto and Vancouver are… basically the same. Montreal is a bit different because of the language aspect, I’m guessing,” says Tal.