Have you ever eaten at the Mandarin?
It’s an embarrassment of riches, albeit if riches comes in the form of quantity over quality, but nevertheless, your options seem endless, and it’s often a question of where to start.
Traditionally, one might eat salad before the main course. However, there’s nothing to stop you from starting with an iced-cream sundae.
So with two massive news stories hitting the Toronto and Vancouver real estate scenes this week, the question becomes: which one is the crab legs?
Isn’t this a classic example of “much ado about nothing?”
I can already feel cynicism exiting every pore of my fingers as I hammer away at this keyboard, but seriously.
Are we seriously going to act as though this is significant?
In a city where the average home price is $762,975?
Damn, do I ever hate politics.
Let me start from the beginning…
On Monday, in what I consider a blatantly-obvious political move by Ontario Premier, Kathleen Wynne, who’s approval rating is at a whopping 14%, the Liberal government announced that they would “double” the rebate on land transfer tax for first-time home-buyers.
The current rebate is $2,000.
The rebate will take effect on January 1st, 2017.
Under the current system in Ontario, which has remained unchanged since 1989, the land transfer tax is payable on a sliding scale that shows as follows:
That chart comes from the Ontario Ministry of Finance website, and I’m assuming since they use the phrase “value of the consideration” rather than something most people would understand, like, “purchase price,” then perhaps this also hasn’t been updated since 1989, or at least since the birth of the Internet.
First-time home-buyers currently receive a $2,000 rebate on their land transfer tax, which is significant for those buying homes in Keswick, Kearney, Kipawa, or Kormak, but really doesn’t mean much to those first-time buyers here in Toronto, paying $950,000 for their 3-bed, 2-bath, semi-detached home.
Yes, I know, many first-time buyers are picking up $380,000 condos too.
But on the whole, can’t we agree that the $2,000 rebate is being made into a MUCH bigger story than it actually is?
I think it’s fantastic, don’t get me wrong. Anything is better than nothing!
House prices in Toronto are nuts; I know that better than anybody!
But let’s not fool ourselves into thinking that Kathleen Wynne is going to make up this $2,000 per-home loss in tax revenue by finding and eliminating redundant and/or inefficient government programs, jobs, expenditures, et al. No, she’s going to find the money somewhere else.
So, in effect, is she not simply bribing the residents of Ontario…with their own money?
Of course, the “second part” of the big announcement on Monday is that land transfer tax on houses over $2,000,000 is going to be increased.
Robin Hood, are you there?
So with the political rant out of the way, let me talk about the real estate angle.
A buyer of a $380,000 condo currently pays:
-$4,175 in Provincial land transfer tax
-$3,525 in Municipal land transfer tax
Let us not forget that up until David Miller took office, there was no municipal land transfer tax. February 1st, 2008, we got hit with the “double tax,” and the city has been adding somewhere around $500 Million per year in tax revenue ever since.
But as far as this would-be buyer of a $380,000 condo goes, I will admit, that the increase from $2,000 to $4,000 for the provincial rebate is somewhat significant.
The buyer, who if he or she were not a first-time buyer, would be on the hook for $7,700 in combined taxes – a ridiculous number, that in my opinion, has zero to do with real estate and/or the “cost” to the Toronto/Ontario governments of transferring ownership, ends up paying only $2,175 for Provincial, and zero for Municipal under the old system, and now would pay only $175 under the new system!
That’s a win for the little guy!
Of course, the hard-working, tax-paying, trying-to-get-ahead couple who sells their $380,000, 1-bedroom condo and buys a “move-up” house for $950,000, still has to fork over $30,200 to the two governments for some god-forsaken reason, but hey – at least the little guy gets his $2,000 back!
Now just for fun, and so one of you can say, “Why would I feel bad for anybody buying a $2 Million house?” Let me illustrate what the new tax will do to a buyer of, say, a $2,200,000 house.
Under the old system, that buyer, who dare I say may have earned his or her way to the point of being able to buy for $2,000,000, and should not be criticized or ostracized, would pay a whopping $80,200 in combined land transfer tax.
Under the new system, that buyer has the privilege of paying $89,200.
I told you the Liberals would find a way to get that “lost” $2,000 back!
And how long until the municipal government follows suit?
So I guess my problem with the “new rebate,” in addition to the increase in land transfer tax for properties over $2 Million is quite simply this: uninformed buyers out there are reading the headlines, and thinking this makes a difference.
But it doesn’t.
To steal a theme from Colin Jost on Saturday Night Live:
“Thank goodness for this new $2,000 tax rebate, because that means I can finally afford a home,” said by nobody, anywhere, ever.
Not a single person in the city of Toronto woke up on Tuesday morning and said, “With this new rebate, I’m now in a position to afford to buy.”
It’s great, and “every penny counts,” and all that.
But I see this as a political move rather than a move to actually help first-time home buyers, and I fear it’s just setting people up for disappointment, especially as the media takes hold of the story, and uses the words “first-time buyer” along with “help” and, even worse, “affordable.”
Up next: Kathleen Wynne gives back $4 per month on every hydro bill to chase the senior vote…
For those of you still reeling over the 15% “foreign buyer’s tax” that Vancouver instituted this past summer, maybe you weren’t ready for what followed…
Don’t forget, the City of Vancouver was effectively given powers to tax vacant homes back in July, and this was what we thought was coming, but instead, after all the talk about “vacancy taxes,” out of nowhere we got the 15% foreign buyer’s tax.
We thought that was it.
We thought that the 15% tax, which was a massive overreaction, and had to be somewhat impulsive in nature, given it came out of nowhere, was instead of the vacancy tax.
It turns out, the 15% tax was basically like eating crab legs at the Mandarin, before you take down a plate of Kung Pao chicken.
A vacancy tax……..and a foreign buyer’s tax?
What the hell is going on out in Vancouver?
The tax, which was initially reported to be a 1% tax, still seems somewhat unclear.
Other reports have said that “if you lie about vacancy,” the fine could be $10,000 per day.
And the best part (I mean “best” in the very-most cynical nature, in case that wasn’t obvious…) is that the tax is going to include houses posted for lease on AirBnB.
What a gong-show.
Vancouver Mayor, Gregor Robertson, estimates that there are 10,800 vacant homes, and 10,000 homes that are “not fully used.”
What the hell does that last part mean?
Are we going to send out inspectors to ensure that there’s a body in every bedroom?
I understand there’s a housing “crisis” in Vancouver, but does anybody think that the 15% foreign buyer’s tax, plus the vacancy tax, plus the fines for avoiding the tax, plus the tax being instituted on investors thinking outside the box by renting on AirBnB, plus the idea of houses being “not fully used,” all together, is just a wee bit overzealous?
And in all of that, believe it or not, what gets me the most is the AirBnB issue.
I understand that the government is trying to avoid providing a loophole, since a property-owner could simply list his or her vacant property on AirBnB, maybe rent it one week per year, and avoid the tax.
But what about the true investor?
What about the person who buys a condo, and instead of renting the unit for $2,000 per month, decides to actively manage the property, rent it for days or weeks at a time, and pull in $3,600 instead?
Shouldn’t that hard-working investor, who has took on the risk associated with an investment, be able to seek a return as he or she sees fit? Since when is it the government’s job to tell people how to invest, and in what?
I know this opens the door to a grey area.
But then why not get really specific, and combine the two taxes?
Ready for this idea?
A vacancy tax for foreign buyers.
There’s a winning combination that avoids pissing off anybody in the Province who can vote. And isn’t that what all this is about? It’s not about people; it’s about politics.
Of course, the tax is going to cost $4.7 Million to set up, with a $1.5 Million cost to enforce every year, and since those are just estimates, then we can assume the true cost, as is with anything in government, will be higher.
And who will be appointed the Vacant Home Czar? There’s a position that will be in high demand!
So as was the case with the $2,000 Ontario land transfer tax rebate above, I think there’s both the story that people want us to see, and then the true conclusion that one should eventually reach.
The foreign-owner, who is keeping the property vacant, holding it long term, will simply see the $30,000 tax on the $3,000,000 house as yet another cost of doing business.
But the Vancouver-resident, who’s pockets aren’t as deep, will have his or her hand forced by the new tax, the potential fines, and the government’s questionable decision to selectively distinguish between daily and yearly rentals via AirBnB or MLS.
And in the end, the combination of a 15% foreign buyer’s tax and a vacancy tax, has the potential to eliminate 100% of foreign purchases in the city, (which of course, has the potential to massively drive up demand in areas like Richmond, but I digress), and send Vancouver prices spiraling downward.
Not a bad thing, says anybody who doesn’t own a house.
But for those with their wealth built on housing gains over the past decade, wiping out billions of dollars of net worth among city residents probably isn’t the best way to drive the local economy.
Two days, two stories, and a lot of misinformation and misunderstanding, in my opinion.
The Ontario land transfer tax rebate is a pittance, and will have would-be buyers getting excited over nothing. It’s a political move, by a group that’s held power for thirteen years but can feel the public’s discontent and wants to start gaining favour.
The Vancouver government’s decision to institute a vacancy tax, after a massive foreign buyer’s tax, will end up having more of an effect on local owners and investors than it would the actual foreign buyers that are silently being targeted.
A good day for real estate? Sure.
But a bad day for politics, no question about it.