What would happen if there was a 15% tax payable by foreign buyers of residential real estate? The percentage would be applied to the price of their property purchase.
We can get an idea of what might happen because this is what the province of Ontario in Canada recently implemented. The Toronto real estate market has been going through a similar experience to that of Sydney and Melbourne.
Canada appears to be one or two steps ahead of Australia in taking action on rising property prices. Toronto has had an even wilder ride than Sydney or Melbourne. There is statistical evidence that year-on-year to March 2017, Toronto home prices increased by one third. Some of this extraordinary increase might have been due to foreign buyers acting on the expectation of such a tax.
On 20 April 2017, a new tax of 15% came into effect in Ontario. It is too early to draw any conclusions on its impact but it is also too tempting to take a look at what is happening there.
Although Canada’s official interest rate at 0.5% is significantly lower than Australia’s, the overall housing market experience of low interest rates and foreign buyer activity, is being paralleled in the two countries.
In the first two weeks of May 2017, the early indications are that the volume of property sales fell by 16%. There are also indications that the number of people attending home inspections is dramatically down.
From the Australian experience, this seems to be the classic playbook when there is an expectation of falling property prices. Buyers, especially investors, pull back with the attitude of why buy today when prices are going to be lower tomorrow.
Has this action in Ontario solved the problem of housing affordability, especially for first home buyers? It is still early days but so far property prices have come down by a minor blip – only 3.3%.
NSW Labor’s new housing affordability plan
Under Labor’s policy at least 25% of new properties constructed on government-owned land will be set aside as Affordable Housing for families and young people struggling to get a home.
In addition 15% of new properties arising from rezoning on private land will also be set aside as Affordable Housing.