Government numbers earlier this week showed that the province’s foreign buyer’s tax on real estate has curbed offshore investment and hosed down a feverish Toronto region housing market.

But a year after its launch last April, industry observers remain unconvinced that Ontario’s 15 per cent non-resident speculation tax had the right target in its crosshairs and, home buyers and sellers — caught mid-transaction by the ensuing plunge in home values — say the government hasn’t even acknowledged the casualties caused by its manipulation of the market.

If anything, the data attached to the tax collection has reinforced research that showed the typical Toronto condo investor isn’t a high roller from overseas. They are more likely middle-aged immigrants buying a second property as a retirement investment or home for their children. Many of them lose money on renting out their units. A study released earlier this month by consulting group Urbanation and CIBC found that only 10 per cent of Toronto condo buyers were from overseas.

Toronto broker John Pasalis, who was among the first to identify speculation and investment as a key driver in the soaring 2016 and early-2017 market, approves of the ensuing cool down. He even thinks the real estate industry has downplayed the impact of foreign investment.

Seven per cent foreign buyer participation — the level in York Region last year, according to the province — is “quite big enough to tip a housing market out of balance,” said Pasalis. But it was domestic investment that played a significant role in driving up the region’s prices to a peak in March with a more-than-30 per cent year-over-year increase.

In the year since the tax was introduced as the centrepiece of Ontario’s Fair Housing Policy, it has raised $40 million and reduced the number of offshore property transactions in the Greater Golden Horseshoe to 1.6 per cent in February, down from 4.7 per cent last May, according to the Liberal government’s release Wednesday.

It showed nearly half of the non-resident speculation tax collected in Ontario — $18.9 million — between Nov. 18 and Feb. 16 was in the City of Toronto. York Region accounted for another $13.1 million. Less than 1 per cent was collected outside the Toronto area.

The foreign buyers’ tax was one of 16 measures by the Liberal government aimed at slowing increasingly unaffordable housing in the region.

“Our data continues to indicate that our measures have helped to calm the housing market,” said Ontario Finance Minister Charles Sousa in a statement Wednesday. “People are finding more affordable alternatives as housing supply has increased, and rent control measures are helping to ensure rental prices remain predictable for tenants.”

But even the expansion of rent controls to newer buildings, which has been welcomed by tenant groups, hasn’t made finding an affordable rental easier, said Mary Todorow, research/policy analyst with the Advocacy Centre for Tenants Ontario.

“It’s great that exemption is gone so people don’t have to worry, shake in their boots when the annual rent increase is taken,” she said.

But it doesn’t solve the affordability crisis, particularly in Toronto where half the renters in Ontario live, said Todorow. Tenants make less than half the median income of homeowners in the province and the dearth of vacancies — about 1 per cent in the city — means rents continue to climb.

Until the government expanded restrictions on landlord increases last April to include rentals built after 1991, 240,000 households weren’t covered by rent controls and the number was increasing all the time, she said. That’s because condos have picked up where purpose-built rental development has left off, and if you look at all the condos built since 1991 that’s a significant number.

The foreign buyers’ tax has an indirect effect on a relatively small group of buyers, but the psychological impacts of its introduction have been profound and have lingered.

Toronto area home sales were down 40 per cent year over year compared with an extraordinary March 2017. The average price was 14 per cent or about $130,000 lower compared to last year, according to the Toronto Real Estate Board. There have been some month-over-month improvements this year, however, suggesting to some analysts that the region has experienced a correction rather than a trough.

Homebuyer Shahina Khan says the tax was ill-considered and implemented without sufficient research. If the government knew how many people would be trapped in mid-transaction by falling home values, those buyers and sellers were written off as collateral damage, she said.

The downturn in the market has been compounded by new mortgage stress tests for buyers like Khan and her husband, who bought a pre-construction home in Oakville in February 2017, just before the market dropped.

They got less than they were expecting from the sale of their previous house and are now living in a basement apartment struggling to finance the closing of their new house which was recently delayed six weeks to September.

The Khans are among a group of more than 100 desperate buyers featured in the Toronto Star earlier this month, that calls itself Community for Fairness. If they don’t find the money to close on their new houses, the buyers say they will have to forfeit hundreds of thousands of dollars in deposits and face a potential legal suit from their builder, Mattamy Homes which is refusing to extend closing dates or reduce prices.

Khan says they have emailed a spectrum of politicians and met with some opposition MPs but have received no response from the Liberal government.

The problem isn’t confined to new-construction home buyers, she added.

A study by Pasalis shows at least 1,000 Ontario re-sale home transactions failed to close in the aftermath of the governments policy, costing those sellers a collective $136 million in losses in about five months when they had to put their homes back on the market and settle for a lower price.

Pasalis believes the losses were probably much greater, including sellers who agreed to a lower price in order to close their initial sale and move on to their next home.

“The implications for the families that have been impacted are lifelong,” said Khan.

Loading... Loading... Loading... Loading... Loading... Loading...

“What is the right way for the government to conduct themselves in a market? Is it a free market? What were the alternatives?” says Khan.

Pasalis says there’s a generation of home buyers who haven’t experienced a sustained market downturn. While he’s somewhat sympathetic to those caught in the recently fallen housing market, older home buyers would probably never have considered buying a new home before selling their old one.

And, he says, “had (the government) not done anything, it probably would have been way worse if prices kept going up another six months.”

Shaun Hildebrand, senior vice-president of Urbanation, said the foreign buyers’ tax has had little to no impact on demand in the Toronto condo market. “It’s viewed as a minor cost to most overseas purchasers,” he said.

“In most cases they’re coming from much more expensive markets, and in some cases are just trying to get money out of the country to a safe haven,” he said, adding that China’s stepped-up restrictions on the outflow of capital has probably had a bigger impact.

Pre-construction buyers aren’t captured in the government statistics until their unit’s construction is complete.

“Five years is a good hedge for a foreign buyer to see the unit appreciate in value to offset the tax and also provides time to figure out a way to avoid paying the tax,” said Hildebrand. There are also rebates for foreign buyers who have children attending school here, as well as those that will become citizens.

“Ultimately, 15 per cent is viewed as insignificant to a foreign buyer motivated to move their money here,” he said. “Many pay all cash.”

Government data suggests that it’s foreign re-sale home buyers who have stepped away from the Toronto-area market, said Hildebrand.

Any new tax or policy is going to cause uncertainty in the market, he said. The Ontario non-resident speculation tax is no different.

That explains the slowdown in high-end property sales: discretionary buyers can often afford to wait for the market to stabilize.

“It reflects a change in buyer psychology and lender risk appetite for large loans rather than underlying demand,” he said. “The core of the market — homes priced at or below the market average, has remained pretty steady. Which is one of the key reasons why the condo market has outperformed.”

Real estate professor James McKellar of the Schulich School of Business at York University, says there’s an element of coincidence in the tax’s launch and the softening of the real estate market.

“The market was waiting for someone to step in and do something,” he said.

But make no mistake, the Toronto area’s housing affordability challenges are here to stay based on land values alone, he said.

“The transaction cost of the house caught our attention, but I think we have a long-term problem, and it’s going to be incredibly difficult to afford good accommodation,” said McKellar. “Land is a fixed resource. We don’t make any more, and we’re going to have to keep accommodating all this growth on the same amount of land.”