Foreign Housing Investment In GTA May Be Larger Than Reported

The first comprehensive data on foreign ownership in the Toronto housing market is raising as many questions as it hoped to answer.

The new statistics, compiled in a unique collaboration between Statistics Canada and the Canada Mortgage and Housing Corp., found non-resident ownership in the GTA amounted to 3.4% of all housing, or 3% of the total residential property value. 

“What’s important is that it’s the first data to shed light on this topic,” CMHC Vancouver Principal Market Analyst Eric Bond said. “Until this data, we didn’t have any information on this.”

The report, which focuses on Toronto and Vancouver only, follows the Ontario government’s introduction of the controversial Fair Housing Plan in the spring. The plan featured 16 new measures to address a volatile housing and rental market where detached housing prices rose above $1M. 

The FHP created a 15% Non-Resident Speculation Tax to curb non-resident purchases. Critics claimed at the time that no specific statistics could be cited to justify the tax.

Since then, the government has twice released its own statistics to tout the success of the FHP in dealing with foreign buyers, most recently in late December. 

That data shows non-permanent residents and foreign corporations accounted for 1.9% of home purchases across the Golden Horseshoe Region from August to November, down from 3.2% earlier in the year. 

In Toronto, the province reports, 3.8% of transactions were made by foreign buyers, down from 5.6%.

“Our balanced measures introduced as part of Ontario's Fair Housing Plan are having the desired effect on the residential real estate market,” Ontario Minister of Finance Charles Sousa said in a news release. 

“Average home resale prices have moderated when compared to the extreme year-over-year price increases experienced earlier this year. The housing supply has grown steadily and ‎people now have more affordable alternatives. Ontario continues to welcome new residents who contribute to its strong economic growth.”

So what is the true foreign owner number? Bond said the Ontario government statistics differ from the StatsCan/CMHC numbers because they measure on-going sales flow over a restricted period, not current non-resident ownership.

“We won’t see the flow until the next survey. And that is certainly the intention,” he said.

The low StatsCan/CMHC stats would suggest there was not a foreign buyer problem in the first place. Even the largest of the statistics — foreign ownership of condo-apartments — places GTA non-resident ownership at 7.2%.

“In my opinion, these numbers are very close to what the main experts inside the industry have been estimating them to be for the last several years,” Toronto broker and True Condo writer Andrew La Fleur said. 

“Over time, if Toronto continues to grow, I expect this number to grow but I don’t think it will ever be more than 10-15%.”

Other industry experts have suggested the StatsCan/CMHC data is welcome but limited, and does not reflect the full story.

The watchdog group Transparency International has attacked the new data, claiming it does not show the large number of foreign owners who purchase or own land through Canadian shell or trust companies.

“[The stats] aren’t accurate based on the the state of Canada’s beneficial ownership and trust laws,” said Transparency International Director of Policy and Programs James Cohen, who wants a public registry to identify foreign owners.

“This way, we know who is buying property and where the money is coming from,” he said. 

It is an opinion shared by many in the real estate industry.

“It is true that there may be many more foreign buyers than reported, as foreign buyers tend to set up a Canadian shell company to purchase residential assets,” JLL Capital Markets Research Manager Gaurav Mathur said. 

“The government needs to identify the owner behind such structures for further clarity.”

Government involvement in the industry, like the Fair Housing Plan, may have already had a damaging effect. A 2017 year-end report from the Toronto Real Estate Bureau blamed a downturn in GTA home sales partially on government interference.

“Foreign home buying was not a major driver of sales in the GTA," the report said. “However, the Ontario Fair Housing Plan, which included a foreign buyer tax, had a marked psychological impact on the marketplace. Much of the sales volatility in 2017 was brought about by government policy decisions.”

La Fleur said the FHP and its foreign buyer tax fails to address the real problem.

“The fair housing plan succeeded in undermining consumer confidence enough to slow prices and sales but it did not address the fundamental issue of lack of supply of affordable housing. This is why we are seeing buyers still flocking to condos and why condo prices are still rising — they are the only affordable option for people.”

The biggest obstacle to limiting foreign investment may be Canada itself. Mathur said the country’s booming economy and steady, secure reputation has proven very attractive to foreign investors. The FHP foreign-buyer tax may have succeeded in giving future investors a reason to question that relationship. 

“Canada is seen as stable. A safe haven,” he said. “The [Fair Housing] Plan did have an effect. It caused investors to pause and take a look at investing in Canada.”