Brokerage: New Ontario housing plan a negative for investors

Ontario’s new “Fair Housing Plan” is a positive for local residents, according to one industry player, but it could squeeze investors out of Toronto’s hot housing market.

“If you’re an investor, these rules are generally not great for you. Anything that’s meant to cool the market is generally not good for investors,” Ray Taaeb, CEO of Casalova, told Canadian Real Estate Wealth. “The only time this would be good for investors is if this somehow leads to a downturn in the market where they can start buying more properties. But I don’t think this will lead to a downturn.”

Ontario Premier Kathleen Wynne and Finance Minister Charles Sousa unveiled 16 new housing measures Thursday, many of which are aimed at addressing housing affordability in the province.

A number of those policies – including expanded rent control that will apply to all rental units and a vacant home tax – likely caught the eye of investors across the province.

It’s the rent control tweak that Taaeb believes will most impact those investors.

“As an investor, if you’re looking at buying rental properties now, it’s now very easy to calculate your return because you know it’s maxed at whatever the rent control price is for that year,” he said. “I don’t think there will be as many people buying these rental properties.”

And these new measures could encourage current investors to sell off some of their portfolio.

“People start to read these rules, investors may believe this is the top of the market; it’s been going up double-digits year-over-year for several years, now that they’ve finally introduced some of these rules, now I’m going to sell my property,” Taaeb said. “If you have an influx of these investors who have held for a while now going on the market, you’re going to have increased supply.

“And when you have increased supply in the market that’s more than the demand for these units, then you’re going to see prices dropping.”


Related stories:
Investor has a suggestion for government policy
CREW poll: Does rent control in Toronto need an overhaul?

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COMMENTS

  • by Jen 2017-04-21 1:30:58 PM

    I don't think we should be making apologies to wealthy foreign investors. Government's job is to represent the average Canadian. If this puts even one more Ontario family into a home, rented or owned, or helps an Ontario investor to build wealth, we should be happy.

  • by 2017-04-21 3:03:48 PM

    The article does not make reference to "foreign" investors at any point.

    In my experience (I am a Realtor in the Toronto market), the vast majority of these investors are local investors from the GTA. This is exactly the issue I have with the policy announcement from yesterday. Policy cannot be created on hunches, but facts and stats. When question as to what percentage of bidding wars are won by foreign investors, the Ontario Finance Minister had no answer, and frankly no numbers to cite. Is it 3% or 40%? This is vital before any policy is introduced. The timing of this plan reeks of a struggling party hoping to stay in power. Also, remember that foreigners cannot cast a vote, so this is a purely political move.

    It is very easy to point the finger at the "evil, rich foreigner", but the issue in the GTA is clearly domestic speculation. Home owners pulling out equity and purchasing investment condos and homes are driving up prices. I have several clients who have purchased 3-4 condos as investments and have enjoyed several years of great returns. This is the issue, not the Chinese. And why is this so? Because money has never been cheaper and with enough equity, a homeowner can accumulate a substantial number of properties. If the government really cared about the market, they would increase interest rates to more realistic levels. Having the rates so low for this many years has created this issue, but the feds are too worried (rightly so) to raise them for fear of economic collateral damage.

    The other issue is that these domestic investors are providing places to live for a growing GTA population. If these units did not exist, then we would have a rental supply issue even worse than it is now. So, are these people to blame for the price appreciation or be commended for providing rental supply for a region bursting at the seams?

    There is no easy answers, but trust me when I tell you that this is not a foreign driven issue.

  • by Gordon J 2017-04-21 3:04:33 PM

    If this 'plan' in fact squeezes investors out of the Toronto housing market, would it not further reduce the supply of rental units?

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