Adjustments to interest rates and taxes on foreign owners can help rein in the continuous upsurge in Canadian real estate prices, experts said
Affordability has long been a contentious issue in Canada’s housing markets, especially in high-demand locales such as Toronto and Vancouver. Compounding matters are new mortgage rules that now require a 10 per cent down payment on homes worth more than $500,000—placing a significant number of properties out of reach of many families.
Just how effective the latest rules (which have taken effect on Monday, February 15) would be remains to be seen. In the meantime, to cool down the overloaded market, academics weighed in on what other steps the authorities can implement.
Simon Fraser University real estate finance professor Andrey Pavlov said that the current climate of low interest rates is one of the main factors driving the continuous price increases, due in no small part to a larger number of buyers getting more expensive homes.
“If the Bank of Canada is determined to keep interest rates low, then reserve requirements for mortgages can be increased so that mortgage rates return to normal levels,” Pavlov told CBC News.
Queen's Real Estate Roundtable director John Andrew said that banks should perform thorough background checks and stress tests on buyers to determine if they will have the capability to follow through and complete payments in the event of a mortgage rate spike.
Moreover, Andrew noted that placing taxes on foreign owners of real estate in Canada’s cities should put some downward pressure on red-hot markets, as this would serve to discourage clandestine purchases on expensive properties by unscrupulous individuals.
“Already we know that some of those houses are being bought by international buyers but they're being put in the name of a Canadian citizen… That's a regulatory issue that they could solve but there isn't the political will to do it,” Andrew said.
At present, foreign investors pay no income tax on their Canadian income, only on their worldwide income.
“Foreign owners should probably pay a marginal tax rate on 100 per cent of their capital gains. I think that would really, really slow things down,” Pavlov concurred.
Just how effective the latest rules (which have taken effect on Monday, February 15) would be remains to be seen. In the meantime, to cool down the overloaded market, academics weighed in on what other steps the authorities can implement.
Simon Fraser University real estate finance professor Andrey Pavlov said that the current climate of low interest rates is one of the main factors driving the continuous price increases, due in no small part to a larger number of buyers getting more expensive homes.
“If the Bank of Canada is determined to keep interest rates low, then reserve requirements for mortgages can be increased so that mortgage rates return to normal levels,” Pavlov told CBC News.
Queen's Real Estate Roundtable director John Andrew said that banks should perform thorough background checks and stress tests on buyers to determine if they will have the capability to follow through and complete payments in the event of a mortgage rate spike.
Moreover, Andrew noted that placing taxes on foreign owners of real estate in Canada’s cities should put some downward pressure on red-hot markets, as this would serve to discourage clandestine purchases on expensive properties by unscrupulous individuals.
“Already we know that some of those houses are being bought by international buyers but they're being put in the name of a Canadian citizen… That's a regulatory issue that they could solve but there isn't the political will to do it,” Andrew said.
At present, foreign investors pay no income tax on their Canadian income, only on their worldwide income.
“Foreign owners should probably pay a marginal tax rate on 100 per cent of their capital gains. I think that would really, really slow things down,” Pavlov concurred.
