TORONTO – Authorities in the province of Ontario unveiled more than a dozen measures meant to curb skyrocketing house-price gains in the Toronto region, highlighted by a surtax targeting foreign buyers.
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Canada's most populous province said Thursday that it needed to act urgently to stabilize a frothy real-estate market that prominent economists have warned has entered bubble territory. House prices in Toronto have been on a tear in recent months, rising nearly 30% in March from a year earlier.
Bank of Canada Gov. Stephen Poloz warned last week prices in Toronto were in an "unsustainable zone" and had reached levels that didn't reflect economic fundamentals.
A highlight of the Ontario government's response is a 15% tax on foreign buying. The tax mimics a similar surcharge British Columbia authorities introduced last summer to curb a 30%-plus run up in prices in the west-coast city of Vancouver, after local data and research indicated foreign investment -- in particular from China -- were helping fuel a surge.
The Ontario tax will be effective immediately, and apply beyond Toronto to a wider region surrounding Canada's largest urban center, covering a total 12,300 square miles which an estimated nine million people call home. House prices in surrounding communities have also surged, as buyers give up on the Toronto market and head further out to find real estate within their budget.
Ontario officials estimated foreigners represent 8% of all real-estate transactions in the Toronto area, based on data made available to them. They added roughly 6,000 residences now sit vacant in Toronto, likely owned by foreigners and domestic speculators.
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"These are a measured set of responses to ease the enormous pressure that people are under right now," said Ontario Premier Kathleen Wynne at a news conference, where she relayed stories of families losing multiple bidding wars for houses and finding themselves priced out of the market.
"It is a balanced plan that will increase supply and rein in speculation. It is about creating stability and addressing affordability in our housing market," she said."
Ontario also plans to allow municipalities, led by Toronto, to slap their own tax on vacant properties. It also introduced caps on rent increases.
The Vancouver foreign-buyer tax "had a noticeable moderating effect on prices," said Robert Hogue, economist at Royal Bank of Canada. Its implementation in August "coincided with the first weakening in annual price growth in more than three years," he added.
Analysts say Ontario had no choice but to act aggressively, given the frothy state of the Toronto market.
"Standing by while housing prices shot to the moon was no longer a viable option for Ontario -- the risks were simply too great," said economists at National Bank Financial, in a note to clients. The Toronto region accounts for roughly 19% of Canada's gross domestic product.
One economist, Jimmy Jean of Desjardins Capital Markets, said a tax on foreign buyers in Ontario could prompt nonresident investors to move elsewhere -- such as markets in Montreal and Calgary. Economists and real-estate officials say the Vancouver foreign-buyers tax prompted bubblelike conditions to migrate east to Toronto.
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(END) Dow Jones Newswires
April 20, 2017 12:04 ET (16:04 GMT)