Will the recent announced measures affect the real estate market?

Will the recent announced measures affect the real estate market?

The province of Ontario recently introduced 16 measures as part of a package to enhance the protection of buyers, renters and attempt to stabilise the real estate market.

Out of the sixteen measures, only two might be considered to have immediate and/or short term tangible effect on a certain segment in the real estate market; namely, landlords, tenants and/or foreign buyers or investors.

These two measures took effect on the 20th and 21st of April 2017 and are:

  • Rent Control on private rental units in Ontario
  • 15-per-cent Non-Resident Speculation Tax (NRST)

The remaining 14 include long term plans and enhancements to existing programs that require time, money and other resources to be implemented.

In short, if you are a resident looking to buy or sell a house in the GTHA (Greater Toronto and Hamilton Area), the recent announced measures should not affect you today or in the near future. Yet, each case is unique and should be looked at separately. We highly recommend that you consult with your Real Estate professional for further advice based on your specific situation.

What changed in the residential rental market?
Landlords of properties built after 1991 were able to increase the rent on tenants as much as they wanted prior to this announcement. Now, such increase is capped at the annual inflation rate, not to exceed 2.5%.

This will motivate landlords to apply rent increases on tenants every single year to ensure that they are not at a disadvantage in the long term. On the tenant side, it encourages tenants to negotiate longer term fixed rent leases to secure fixed rental rates for a longer period. It is important to note that rent increases only apply to current leases and not to new ones.

Will this measure protect tenants?
Yes, it does add protection to tenants to a certain extent keeping in mind that rent increases apply to current leases and not new lease agreements.

Will it demotivate buyers from investing in rental properties?
No, it does not demotivate buyers from investing in rental properties. On the contrary, it adds clarity to what they should expect in future rental income.

While some landlords might see the new cap measure as a reason to exit the rental property market, it is important to study the numbers carefully before making such a decision.

What is the newly introduced Non-Resident Speculation Tax?
The 15% tax applies to purchase agreements signed after 20th of April 2017 and to the TOTAL value of consideration of the “residential” property when one OR ANY of the owners on title is a non-resident foreigner (please speak with your REALTOR and/or lawyer for more information if this applies to you or not – there are exceptions).

Foreign buyers only resemble around 8% in Ontario. In Vancouver, 6 months following the foreign tax announcement, foreign buyer involvement went down from 15% to 4% (a reduction of 73%). If we assume the same effect will happen in Ontario, then we should see a reduction in foreign buyer involvement from 8% to 2%. This creates an additional 6% of supply of properties.

Will this affect the price of properties in the GTHA?
It is important to acknowledge that the majority of properties that attract foreign investors are the typical 1 to 2 bedroom condo units located in the downtown core of the major cities in the GTHA. Therefore, one should not expect major effects, if any, in other segments of the market.

In Real Estate, there is no general rule that applies to everyone.  EVERY situation is unique and involves multiple factors to consider. Licensed real estate professionals are well equipped to provide you with advise as it relates to your specific needs. Make sure to involve them in your decision making process as they can bring different insights and opportunities to your attention.

For more information, please feel free to reach out to us at info@akarat.ca or directly at 416 900 8865.

Blogged by:
Mohammad Abusaa (M. Abusaa)
Real Estate Broker of Record & Mortgage Agent

D. 416 825 7775

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