At a time when real estate speculation is gaining ground in Canada, experts are proposing to draw inspiration from abroad to find solutions to this phenomenon which is exacerbating the shortage of affordable housing here and elsewhere.
At the end of 2021, the average value of a home had reached $811,700 in the country, up 43% compared to December 2019 and 97% compared to 2015. Meanwhile, the share of real estate transactions carried out by first-time buyers has declined , for the benefit of investors who have seen their weight in the country’s real estate market increase.
In this context, “we need to find measures that discourage speculators,” insists economist and lecturer at the School of Management Sciences at the University of Quebec in Montreal Dieudonné Ella Oyono. The latter thus notes the importance of imposing a “capital gains tax” at the time of the resale of a property, when this takes place in a period of less than a few years after the initial purchase. This measure would help counter the phenomenon of rapid resales of properties carried out for speculative purposes.
The Singapore recipe
In this regard, Canada could take inspiration from Singapore which, in addition to having created an immense stock of social housing starting in the 1960s, has implemented, in recent years, fiscal measures in order to impose taxes increasingly higher on purchase depending on the number of properties acquired in the past by a buyer. The country also imposes high charges on the resale of a property when this takes place within a period of less than three years.
As a result, the average property price increased by an average of 4% per year in Singapore between 2009 and 2019, compared to an increase of more than 10% in cities like Beijing and Shanghai, found the Chinese university researchers who carried out research on the subject in 2019.
“The most structuring measure to undermine speculation, in my opinion, is the imposition of the rental value which is in place in Switzerland”, notes for his part the director of housing files at Vivre en ville, Adam Mongrain. “In Switzerland, as soon as an owner-occupier finishes paying his mortgage, the Swiss state will ask him to start paying additional taxes because it judges that the owner now has an asset that has a rental value,” explains Mr. Mongrain.
Landlords find themselves discouraged from owning multiple properties, because they will have to continue paying a form of “rent” to the government when they have finished paying their mortgage. However, “if there is no way to achieve a competitive advantage with property, it becomes a less interesting investment vehicle, so it reduces speculation,” summarizes the expert.
Tax speculation
In 2016, British Columbia imposed a tax on foreign buyers, followed in 2018 by another tax measure targeting homes left vacant for speculative purposes. This first tax had an immediate effect on the drop in property prices, which was felt the following year, shows a study from last January on the subject. The long-term effects of these tax measures are, however, limited, since they have not been accompanied until now by incentives aimed at stimulating residential construction in the province, where demand exceeds supply, notes one of the authors of this research, Andrey Pavlov, professor of finance at Simon Fraser University, in Vancouver.
“What I find disappointing is that since then, not only have we not removed the obstacles that existed to the creation of housing, but we have also added several others,” says Mr. Pavlov, according to whom the relaxations Regulatory measures are needed to stimulate housing construction in the region by making real estate investments less “risky”.
“You need both,” adds Dieudonné Ella Oyono. The latter believes that taxes against real estate speculation are necessary, provided that they are accompanied by incentives for construction. “The idea is to put in place rules that allow the real estate market to function well. »