Another Canadian city contemplates foreign buyer tax

These days, Montreal is riding high—the city`s economy is surging and so is its real estate market—but that’s inevitably attracted interest from foreign buyers whom the mayor fears is driving unaffordability.

Valerie Plante, elected mayor last year, wants to follow Vancouver and Toronto’s lead in implementing a foreign buyer tax. However, according to Carrie Law, CEO and director of Juwai.com, the largest website in China for international real estate, the proposed tax would actually harm Montreal’s renters who comprise two-thirds of the city’s households.

“A foreign buyer tax would favour the one-third of Montreal households who are owners over the two-thirds who are renters,” she said. “That means two out of three care more about rents than prices. I do agree that buyers from China play an important, minority role in certain parts of the condo market. Most new condos bought as investments by foreign buyers will end up as rentals. The current condo boom could lead to foreign buyers financing lower rents for locals. It’s hard to understand why the government opposes the possibility of lower rents. Rents have a bigger impact on many more people than do prices.”

As mortgage broker George Macris of Dominion Lending Centres Centre-Ouest in Montreal notes, the municipal government doesn’t have the power to instate a housing tax. Plante’s party, Projet Montreal, first called for a tax in spring 2017, but unless the provincial government steps in, their calls will go unheeded. Macris added that, for a city its size, Montreal is a low-priced market that was bound to attract investor attention, both domestic and from abroad.

That doesn’t mean Plante may have a point about the influence of foreign money on escalating housing prices.

“As a veteran Montreal mortgage broker, it’s been a little over six months that every client I have who is prequalified, and who’s in the market to purchase in Montreal or the surrounding areas, is finding themselves in multiple offer situations and I’m seeing more and more offers accepted just over asking price,” he said.

“Foreign buyers are maybe playing a role in the pricing game, but Montreal has a growing economy with the lowest unemployment rate it’s seen in decades.”

Indeed, at 5.6%, Montreal’s unemployment rate hit its second-lowest level on record last month.

But Law thinks that a foreign buyer tax could have unforeseen ramifications that Plante’s administration will rue.

“Would the tax address the issues its supporters claim it does? No,” she said. “We believe those fears about affordability in Montreal are exaggerated. Affordability is actually what’s driving prices up, in the form of high employment and low interest rates. Foreign buyers are in no way driving market-wide price or sales trends. That’s preposterous on the face of it.”

 

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