Real estate speculators are in Ontario’s regulatory crosshairs
The spectre of a new tax hangs over Ontario's real estate sector as Finance Minister Sousa says so-called "property scalpers" are making real estate less affordable for everyone
TORONTO—Ontario Finance Minister Charles Sousa is giving strong hints that the government’s much-anticipated house affordability package will include measures targeting real estate speculators, or as he calls them “property scalpers.”
In public comments last week, Sousa said speculators are reselling contracts for pre-construction homes multiple times before closing, using assignment clauses.
“There are those who go into new developments, buy up a slew of properties, and then flip them, while avoiding paying their fair share of taxes,” he said. “I call them property scalpers.”
However, the finance minister admitted there’s no data to show how widespread “property scalping” is in Ontario.
A similar practice known as shadow flipping became increasingly common in Vancouver. It typically involved a real estate agent reselling the same previously owned home multiple times before the closing date, driving up the price of the house, sometimes by hundreds of thousands of dollars.
In May 2016, the B.C. government put in place new rules that require real estate agents to draft offers that require the seller’s consent to a contract transfer, and any resulting profit to be returned to the seller.
In Ontario, according to Sousa, property scalping involves only new developments.
“What’s worse is young families who are actually trying to get into the queue, into the lineup to buy that first home, are getting crowded out,” he said.
Sousa’s office would not comment on whether the government would introduce rules similar to those imposed in British Columbia, but the finance minister has floated a number of possible measures, including implementing a tax on foreign buyers, vacant homes and speculators.
He has said that at least some of the housing measures will be included in the Ontario budget, set to be tabled April 27.
Assignment sales are not illegal, but Sousa said he wants to close a loophole that allows so-called property scalpers to treat their profits as capital gains _ which means only 50 per cent is taxable. His efforts to get the Federal Finance Minister Bill Morneau to include capital gains changes in the federal budget were unsuccessful.
The two finance ministers and Toronto Mayor John Tory will meet Tuesday to discuss house affordability in the region.
The provincial government’s lack of data on the housing market and other real estate-related issues, and Sousa’s comments on “property scalpers” _ admittedly based on conversations he’s had with some developers _ are causing some concern among builders.
One major Toronto-area developer says “property scalping” is not a major phenomenon in the region.
“Not in any widespread way,” said Christopher Wein, president of Great Gulf. “We’re certainly, in our organization, not seeing a lot of evidence of that.”
Wein said his company builds condos and houses throughout the Toronto region and generally requires that buyers get permission from Great Gulf to reassign their contracts for new homes.
Typically, his company only sells one pre-construction property per family, Wein said.
“We don’t allow a person to buy five or 10,” he said. “We sometimes get requests to buy multiple units, and I don’t allow that to happen, because I question why anyone would need more than one unit and it sort of sparks the idea that maybe they’re speculating on real estate.”
Wein said everyone, government included, needs to be careful not to rely on “anecdotal” stories about the real estate market.
The provincial Liberal government has come under increased pressure to do something about housing in the Greater Toronto Area, where the average price of detached houses was $1.21 million in March, up 33.4 per cent from last year. In Toronto, the average price of detached properties hit $1.56 million, an increase of 32.8 per cent from March 2016.
Bank of Canada governor Stephen Poloz said last week that the current rate of price increases suggests demand is being driven more by real estate speculators and investors than homebuyers. Poloz said the rate increase was unsustainable and reminded homebuyers that house prices “can go down as well as up.”