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A major tax hike enacted this year on Toronto’s luxury homes could have wealthy buyers fleeing to the city’s lower-cost suburbs, giving owners in those areas motivation to sell.
Whether Toronto house hunters turn their searches to the suburbs, however, “depends on price points,” said Christina Clavero, managing director and sales representative at the Agency in Oakville, an affluent suburb about 24 miles southwest of downtown Toronto.
Along with nearby cities like Mississauga, Burlington and Hamilton, Oakville has become a popular destination for buyers seeking more space and lower costs than Toronto, one of Canada’s priciest housing markets.
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“The city buyers most affected by the tax increase are in the C$3 million to C$5 million segment, which is midrange for Toronto,” Clavero said. “They’re the ones feeling the pressure of high interest rates, since they’re typically financing homes. Add this new municipal land-transfer tax, and they may definitely re-evaluate buying in the city.”
On Jan. 1, Toronto’s municipal land transfer tax soared for high-end buyers. Instead of a 2.5% tax for any property over C$3 million, the top rate will now reach 7.5% for homes worth more than C$20 million.
As a result, the buyer of a C$20 million house will pay a one-time transfer tax of C$1.5 million to the City of Toronto―up from C$500,000 in 2023. Toronto is the only city in Ontario that imposes its own land transfer tax on top of the province’s flat 2.5% tax.
There’s already a history of house hunters turning to the suburbs in response to a city tax hike. Buyers at lower price points have opted for the suburbs over the city since the municipal tax was first imposed in 2008, according to said Peter Kolisnyk, a broker and private office adviser at Engel and Volkers Oakville.
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More budget-conscious buyers, he noted, are also anxious that the city of Toronto is set to raise property taxes by 9.5% this year. Lawmakers had proposed hiking them by as much as 16.5% if Canada’s federal government didn’t pitch in on costs around housing refugees. But “for wealthier individuals in the luxury market, those are small differences,” Kolisnyk said.
Though for high-net-worth buyers, the new tax rates “are not a determining factor” in choosing locations, Klisnyk said.
“What’s more relevant is the lifestyle choice between city and suburbs,” he noted. “Anyone who can afford a C$10 million house in Toronto probably owns homes in multiple locations already. So it comes down to whether you want a big house in a densely populated city or a bigger home with land and maybe lake views in an area like Oakville.”
“The luxury buyer won’t bother moving” because of higher taxes, said Maureen O’Neill, manager of Sotheby’s International Realty Canada in Toronto. “If they can spend C$5 million on a house, they’re not going to change their lifestyle or start commuting. Executives who need to live near the downtown core will just swallow it. People with money don’t want to leave behind the lifestyle and the culture. It’ll be business as usual.”
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Reactions to the tax will also depend on a buyer’s life stage, she said. “If someone’s nearing retirement age, and had considered a pied-a-terre in the city, they may now look at the U.S. or Costa Rica for their secondary residence,” she said. “Real estate here was always considered a good investment. When taxes like this take that feeling away, buyers may put that money in the stock market instead of property.”
Broadly speaking, owners in the suburbs already are seeing much better price appreciation than their counterparts in Toronto. In Oakville, the average price of homes sold in December was C$1.529 million, an increase of 18.7% from December 2022, according to the Canadian Real Estate Association. In Toronto, the average price of resale residential homes in December was C$1.07 million, a decrease of 0.4% compared to a year ago, according to the latest data from the Toronto Regional Real Estate Board (TRREB).
The Agency’s Clavero noted that even before the tax increase, more than half her high-end buyers were Toronto migrants.
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“They’re upsizing and seeking better schools and safer communities,” she said. “In spring, when things start picking up, I think we’ll see even more demand because of these taxes.”
Long-term, however, the city will remain appealing regardless of tax rates, according to Joanna Lang, a managing partner at Outline Financial in the city.
“More clients are now mandated to come back to work from the office at least a few times a week. I am seeing clients who tried the suburbs now inquiring about moving back to the city, and they are willing to sacrifice extra space for having less of a commute and more time with their family,” she said. “More clients also value the walkability of their neighborhood and community. Toronto is a city of neighborhoods.”
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Unless clients work outside Toronto’s downtown core, “I find that the main reason to move further out is economical,” Lang said. “Clients move out because they need to balance out a need for more space with their budget and a dream of owning real estate.”
No matter where sales trend, the tax is a net negative across the board, according to O’Neill of Sotheby’s.
“We’re opposed to it. It’s not fair. It’s a tax on the rich. And it will affect the whole economy,” she said. “There’s more hesitation around real estate decisions, more fence-sitting, more pausing. People will not move as fast as they had been.”
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