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2016 Federal Budget | What It Means for Condo Buyers & Investors

2016 Federal Budget | What It Means for Condo Buyers & Investors

Last week's reveal of the Liberal's new budget left Canadians split - some cheering over funding for various social reforms and others disgruntled as a few of Trudeau's key campaign promises failed to make the approved budget plan. And there were mixed opinions on whether or not the move to support the middle class was truly the focus.

The party line has been "growing the middle class" but where home costs are concerned, the focus has been largely on helping low-income families and at-risk communities. There are a few initiatives however that, long-term, should help contribute to greater stability in the Toronto condo market.

If you currently own a home or are thinking of buying a condo - for yourself or as an investment property - here's what you need to know.

2016 Federal Budget Includes Initiatives Aimed at Creating a Healthier, More Balanced Condo Market. But Also Disappointing News for Some Condo Buyers & Investors.

A Step in the Right Direction For Collecting Foreign Ownership Stats

It's no surprise that one of the biggest concerns in terms of the health and overall sustainability of Canada's real estate market - particularly the Vancouver condo and Toronto condo markets - is whether or not the percentage of foreign ownership has surpassed economically prudent levels. It's no secret there's massive amounts of Chinese money in the Toronto and Vancouver real estate markets and, with the exchange rates we've been experiencing, we're getting an increasing number of US buyers here at

The issue is that we have no way of knowing just how much of Canada's or Toronto's real estate is foreign-owned. Unlike other countries like the US, Australia, Japan, Denmark and the UK, Canada doesn't collect these stats at the time of purchase. But that's about to change.

The Fed's have committed $500,000 to Stats Canada to start tracking this data. That's not a lot in the big scheme of things and I think it's a safe assumption that stats will be tracked on purchases moving forward (once systems are in place) as any "back-tracking" of data is likely not viable. Considering we've already gone through the major condo boom, it all feels a bit too little too late.

That said, disclosure of citizenship on real estate transactions moving forward (which looks like this is where Stats Can will lead us), is a step in the right direction and welcomed news for most of us in the industry. Select Realtors who make their living largely (or even solely) on foreign investor clients? Not so much.

This is just the first step in what could be a higher rate of foreign taxation on Canadian real estate purchases which in turn may moderate foreign activity (but in my opinion, probably not by much). The UK, for example, charges capital gains to foreigners selling UK property.

Will Condo Developers Get Scrutinized for Back Taxes?

As you may know, when you purchase a pre-construction condo you pay HST which is typically buried in the sticker price (note: you don't pay HST to buy a re-sale condo). For purchases under $450,000, buyers then have an opportunity to claim all or part of the GST back. But the transition period as HST came into play back in 2010 may be marred with issues in tax reporting that the CRA is still trying to clear up.

No Additional Help With Down Payments Via the Home Buyers' Plan

The biggest change we were hoping to see here at the team was a loosening up on the rules around the Home Buyers' Plan that allows first time buyers to withdraw up to $25,000 from their RRSP to go towards a down payment.

One of Trudeau's campaign promises was to open this up to more people who need help buying a home and not just first time buyers. Before getting elected, the Liberals talked about who should be eligible to access their RRSPs under the Home Buyer's Plan and included divorcees and widows/widowers who suddenly find themselves faced with a lower household income, someone who has to move for work to a much more expensive market and people who are caring for an aging or disabled relative and need to purchase a different type of home. Although not a campaign promise, we also hoped that the Liberals would increase to the amount qualified buyers could withdraw above the current limit. Under the Harper Government, the limit was raised from $20,000 to $25,000 and it looks like it's going to stay there. But that's not keeping pace with the rising costs of real estate which is hurting first time buyers in particular.

So, no additional leg up this year for first time condo buyers and those who struggle with saving a down payment. But given the social funding boosts (more on that below) and commitment to tracking foreign ownership, it's clear that the Liberals are concerned with how expensive real estate has gotten in certain regional and municipal markets.

While opening up the Home Buyer's Plan won't help moderate real estate prices, it would certainly help make home ownership more viable for more people as down payments are typically the biggest hurdle. We hope to see change to the HBP included in the next budget round in 2017.

Condo Investors, Think Twice About Dodging Taxes

The Question Mark: Will Mortgage Rates Go Up?

The biggest impact on condo buyers may not be a direct result of changes to the budget but rather a potential knock-on effect of a tightening on the reins of big banks and other lenders.

One of the most interesting elements in Budget 2016 is what the government is calling their "Bail In Regime" which takes some of the risks of borrowing off of taxpayers. The gist of it is that if a major bank - one that's considered vital to the health of the Canadian economy - is failing, the debt can be converted into common shares to recapitalize the bank, so it's the shareholders who end up assuming risk, not the general public. This is a strategy that many countries around the world have adopted.

As Romana King over at MoneySense magazine smartly pointed out, the new bail in regime is ultimately going to cost the banks more money and risk and so it's not a leap to then assume that the banks will pass these costs onto consumers in the form of rising mortgage rates. It's not a given but it could happen.

James Harrison over at isn't worried, though. He says that "fixed rates are based on bond yields which have stayed low and should continue to do so. There's no sign of this changing. I predict minimal to no change to rates for the rest of 2016 and into early 2017.”

He goes on to say that, “Sure, if the price of oil goes up past $50 or $60, we could see a slight increase of 0.25% to fixed rates and maybe the same for prime. But that's not a make-it-or-break-it number to most buyers' monthly budgets. There's unlikely to be any huge pendulum swing in the cards for at least another year."

But what is continuing to go up is condo prices. As we saw in February, Toronto condo prices were up a staggering +17.8% over same period last year. These are unprecedented figures.

If you're planning on making a move this year anyway, we advise that you do so sooner rather than later, not only to take advantage of low rates while we still have them but also because real estate prices will likely continue their aggressive climb.

If you're currently on a variable rate mortgage and looking to lock in this year, talk to your bank or mortgage broker about the pros and cons of locking in now. And shop around for the best rates and terms. Remember - contract terms can be even more important than rates when deciding between various mortgage options. For example, I'd take terms that favour the home owner over saving 0.1% on my rate. Look for lenders who only charge a few hundred or few thousand dollars to break your mortgage contract versus something like $25k in penalty fees which is, frighteningly, not that unusual.

On that note, I've never heard any talk of bank loan contract terms being regulated but it would be interesting if the Government ever steps in on this, much in the way they did with the telecommunications industry putting a 2 year cap on cell phone contracts and what the Province did with the condo building industry through the new Ontario Condo Act, enforcing greater transparency and clarity of communication.

It probably won't happen with mortgages but having said that, the Liberals are set on creating greater consumer protections against bad bank policies. Straight from Budget 2016:

"Amendments to the Bank Act will be proposed to modernize the financial consumer protection framework by clarifying and enhancing consumer protection... (with the) intent to have a system of exclusive rules to ensure an efficient national banking system from coast to coast."

Time will tell exactly what this means for consumers.

The Biggest Real Estate Focus Is On Social Housing Initiatives

While this doesn't impact the majority of our clients, the focus on social housing was so strong in Budget 2016 that we have to highlight it here.

On this point, the Liberals have put their money where their mouths are - to the tune of $2.3 billion - lending a helping hand to some of the most vulnerable citizens: those living with below-average incomes, particularly low-income families, seniors and marginalized communities.

Constructing More Affordable Rentals

Not everyone can afford to buy a home, particularly here in this crazy hot Toronto condo market . For many, you can forget about freehold property. To add fuel to the real estate fire, rents in markets like Toronto and Vancouver have also skyrocketed leaving some people with few options. And those options are not always acceptable living conditions by Canadian standards.

The budget includes $208.3 million, invested over five years, into the new Affordable Rental Housing Innovation Fund which will be administered by the Canada Mortgage and Housing Corporation. The expectation is that these funds go towards the planning and construction of more affordable rental complexes but also more innovative ones. From the budget plan: "Funding will be used to test innovative business approaches - such as housing models with a mix of rental and home ownership - to lower the costs and risks..."

Better Home Conditions For Seniors

Another $208.3 million has been promised over the next two years to create and adapt better, more affordable housing for seniors. This is a part of the Investment in Affordable Housing initiative and each province will be expected to match the Federal funds. We're not quite sure what this means - whether funds will only go to institutions like senior's home and long-term care facilities or if the initiative will include funding for individuals who need renovation money so that they can stay in their homes longer (e.g. adding a ground floor bathroom or a stair lift), similar to the Home Accessibility Tax Credit.

But Wait! There's More...

There are a number of additional social housing funds including a combined $600M towards renovations of existing social housing and geared to income rental properties, over $550M towards First Nations' reserve housing and an additional fund for affordable housing for northern populations including Inuit communities. There's also funds to support military family housing.
You can view the full 2016 Budget Plan here or watch the Budget 2016 video.
Lead image: Parliament Hill in Ottawa © Wladyslaw / Wikimedia Commons / GFDL.