In September 2016, while the provincial government’s 15% tax on foreign buyers appears to be slowing the market, there was not much more than a 0.1% change in the benchmark sale price. Compared to September 2015, sales were down by 32.6%, but only 10% lower than the average volume for each September over the past 10 years. Some also claim that the 15% foreign-buyer’s tax could be in contravention with many federal tax treaties Canada has with Pacific Rim nations, and with NAFTA, affecting even American buyers. Any challenges to this tax will take time to result in legal precedents, either in Canada or internationally. One could also pose that the tax has achieved what it was intended to achieve. The dropping sales volume due to the new tax may induce price reductions, mostly impacting the higher end of the market.
The federal government through CMHC regulations has made it more difficult for homebuyers to obtain high-ratio mortgages by making homebuyers qualify at an arbitrarily-fixed, Bank of Canada defined conventional five-year mortgage rate that is independent of what the banks are charging in their five-year term rate, and currently is near double at 4.64%, thereby making qualifications more difficult and thereby reducing the purchasing power of these applicants. By requiring high-ratio purchasers to qualify at a rate that is higher than the rate they are paying with their lender, their purchasing power is substantially reduced, preventing them from qualifying for a home that they could otherwise afford. This will hit the low end of the market where first-time homebuyers and high-ratio mortgages are predominant.
In summary, the 15% foreign buyer’s tax curtails the upper-end of the market, the CMHC changes impacts the lower-end, and the majority mid-section of the market is left largely undeterred sales-wise. It is no surprise, therefore, that the market is at the normal ten-year average. The lack of high-end deals (sales of $20,000,000 and above, for instance) as compared to before August 2 drops the average sales price, creating an inaccurate market image, even though we have a 20% to 24% sales-to-actives ratio, which denotes a solid market.