As Toronto area housing prices have soared, so too has conjecture about the role of foreign property buyers in driving up the market.
When the Toronto Real Estate Board (TREB) released data on Tuesday showing only 4.9 per cent of transactions in the region involved offshore buyers, it was presented as proof that a lack of housing supply — not foreign buyers — is behind the region’s rocketing market.
But that hasn’t stopped the sceptics from questioning the figure.
Those who doubt TREB’s findings compare Toronto’s situation to Vancouver where they say the real estate industry underestimated the level of foreign ownership until a crisis in housing affordability prompted the government to step in with a tax that appears to have had dramatic results.
Vancouver sales were down about 40 per cent in January, compared to the same month last year. They were 10 per cent below the region’s 10-year January average.
Toronto’s Realosophy president John Pasalis is among those who fear the Vancouver experience is happening here.
"Most agents’ biggest concern is obviously not immigrants. It’s the fact that when you have wealthy non-residents using homes as a safety deposit box it’s not good,” he said. “It drives up house prices in Toronto and makes everything unaffordable."
If things don’t settle down in another year, he fears that local buyers will feel completely cut out of the market because they can’t afford to buy anything.
That could fuel the kind of emotional populist movement being seen in the U.S. with the election of President Donald Trump, said Pasalis.
He also doesn’t set much store by TREB’s Ipsos poll of about 3,500 member agents. That’s fewer than 10 per cent of the 47,000 board members — 80 per cent of whom sell fewer than six properties a year, he said.
"What TREB sought to do was get the ball rolling in terms of getting actual information because to date we haven’t had any actual empirical information," said Jason Mercer, the board’s director of market analysis.
"If you look at the housing market in the GTA today and see the fact that active listings at the end of December 2016 were half of what they were at the end of December 2015, I think it’s pretty difficult (not) to say that the real issue underlying price growth is the lack of inventory," Mercer said.
"Our hope is that the results of this survey can certainly provide a benchmark and we’d be happy to see other organizations undertake their own research," said Mercer.
But for now, TREB’s 4.9 per cent is the only new number available. The federal government has budgeted $500,000 for Statistics Canada to develop methods for gathering data on foreign ownership. It has also convened a working group of government and the banking and housing sectors in Ontario and B.C.
But there’s no word on when any hard numbers will be available. A government spokesperson would only say that the results of the work will be announced once it is finalized.
Ipsos vice-president Sean Simpson isn’t entirely surprised that his TREB poll findings are being questioned.
He cites an unrelated Ipsos study that tested the accuracy of Canadians’ perceptions of their country. It showed Canadians believed 24 per cent of the population is Muslim. In reality, it is 3 per cent.
The finding that only 4.9 per cent of transactions involved foreign buyers "is in stark contrast to the conjecture and speculation that is out there," said Simpson.
"We build up in our mind that things are a certain way when, in reality, they simply aren’t. I think that is the case here with the foreign buyers situation," he said.
He also doesn’t believe that the respondents could have skewed their answers, even if they had an interest in keeping the number of foreign transactions low to ward off a potential Vancouver-style tax that might sideswipe the GTA housing market.
"Would they lowball it? I’m not necessarily sure they would know to what end we were asking the questions," he said.
The subject of foreign property investment has gained momentum for the same reason real estate discussions hijack dinner party conversation. It’s the craziness of the market, said William Strange, professor of business economics at U of T’s Rotman School of Management.
He is glad someone has finally started collecting numbers. But Strange says he has a lot of questions:
- Would the realtors surveyed necessarily know whether the purchasers were actually overseas buyers, or people moving around the country or region? Would they know where a buyer is in the Canadian immigration process?
- How many purchases don’t involve agents? Many developers wouldn’t necessarily use local realtors to market properties to foreign buyers.
- How do you get a more accurate picture given privacy laws and the reality that many deals are cash, so even mortgage information wouldn’t provide a full picture?
And Strange notes there’s something contradictory in the real estate board’s assertion that the 4.9 per cent is a relatively low number, at the same time it’s warning the number is high enough that a tax or policy intervention could distort the market by affecting communities outside the city or reducing the already scarce supply of Toronto rentals.
Pasalis says 4.9 per cent doesn’t reflect what he sees and hears from busy Toronto agents.
One of those is Richard Silver, a Sotheby’s agent, who has re-tooled his practice to go after the massive overseas market in China and India. He said that foreign transactions account for 20 to 30 per cent of his business.
His office has introduced Mandarin classes and he is preparing for a trip to India to attend an international real estate conference.
But Silver said the 4.9 per cent for foreign transactions sounds about right, given that most residential agents don’t have the same kind of niche business. He stressed that he doesn’t believe that foreign ownership will lead to streets of empty homes in the GTA.
"The people who normally come and buy, they’re not people who flip. They come and reside in the property and hold it. They’re not speculating," said Silver.
"Most of the people we deal with are coming here to live — they’re coming here because they’re putting their kids through school. It’s all about education for the most part."
With files from The Canadian Press
With files from The Canadian Press
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