Canada's Real Estate Outlook 2018

Canada’s housing market in 2017: A year in review

From a rental housing crisis to the court's upholding a ruling for more data transparency to new tax reporting requirements and new rules for foreign buyers. These are the 8 real estate stories that dominated 2017
Real estate market review 2017

In a year of uncertainty…wait, you’ve read that before. Many times before. In fact, just about every review of Canada’s real estate and housing market mentions uncertainty. Thing is, it’s true.

There is a tremendous amount of uncertainty within and around Canada’s property markets—and the fact that real estate touches so many areas of our economy means uncertainty breeds a need for measured control.

How did Canadian real estate play out in 2017? There were more government interventions, a few court decisions, a new tax regulation to adhere to, as well as a whole bunch of frothy market activity towards the end of the year (and after what looked like a market chill). Turns out, 2017 really did offer heaps of uncertainty and now, going into 2018, everyone is predicting a calmer, more balanced state.

To help you wade through what happened (and why), here is Zolo’s list of the eight hottest real estate stories of 2017.

Biggest real estate market stories of 2017

Bank-of-Canada-interest-rate-hikes

No. 1:
Interest rate hike

For the first time since 2010, the Bank of Canada hiked their overnight rate. The move came in July 2017, followed by a second rate hike in early September. There were no more rate hikes in 2017, but these two incremental hikes meant the overnight benchmark rate stayed at 1% and left many with the fear of additional rate hikes in 2018.

canada-revenue-agency-cra

No. 2:
We now report all property sales

Last year was the first time Canadians (and even non-Canadians) were required to report the sale of all properties. Announced in 2016 (and starting in April 2017, for the 2016 tax year), the Canada Revenue Agency wants anyone who sold real estate (starting October 2016 onwards) to fill out form Schedule 3, Capital Gains (or Losses).

This new tax requirement doesn’t mean Canadians will miss out on their principal residence exemption, which shelters 100% of the profit earned when selling your primary residence. (If the property is used solely as a principal residence, a Canadian can fill out the Form T2091(IND), Designation of a Property as a Principal Residence.) What this new tax requirement does is allows the CRA to start tracking and monitoring the sale of properties. This will make it much easier for our nation’s taxman to find chronic house-flippers, non-residents who claim the exemption (not allowed) and anyone else trying to dodge tax owed on the sale of a property.

Mortgage-stress-test-house-for-sale

No. 3:
A mortgage stress test for all

While the latest (and last?) mortgage stress-test didn’t kick in until January 1, 2018, the announcement of the latest qualification rule certainly left its mark in 2017.

Now, all applicants for mortgages in Canada would have to qualify for a mortgage based on either the five-year benchmark rate, published by the Bank of Canada or the contractual mortgage rate plus 2%, whichever is greater. This will certainly make it much harder for some home buyers to qualify for a mortgage loan or secure good mortgage rates, perhaps this is why there was a flurry of buying activity in the months of November and December 2017.

Going into 2018, agents and analysts predict a slower buying and selling market, partly because of the mortgage stress test.

Real estate review 2017. Ontario Premier Kathleen Wynne
Ontario Premier Kathleen Wynne

No. 4:
Foreign buyers pay to play

Following in the footsteps of the former B.C. Liberals, Ontario Premier Kathleen Wynne introduced a foreign-buyer tax for all properties bought in Ontario. The new 15% tax went into effect on April 21, 2017. Any homebuyer that is neither a Canadian citizen nor a permanent resident would be required to pay the tax if they bought real estate anywhere within Ontario’s Golden Horseshoe—a densely populated area that starts at Niagara Falls and extends west, wrapping around Lake Ontario, through the Hamilton area and northeast up to Toronto.) The area contains more than 68% of the province’s population. Property with more than six units is exempt from the tax.

In B.C., the former Liberal government made amendments to their hastily introduced B.C. foreign buyer’s tax, which they introduced on August 6, 2016. Under the changes, non-residents with temporary work permits could buy real estate in Metro Vancouver without having to pay the 15% foreign buyer’s tax.

Data shows that foreign investment in Metro Vancouver real estate plummeted immediately after the initial tax took effect in August 2016. But data from the BC government suggests that foreign buyers are slowly coming back into the area’s housing market.

long-line-Canada-rental-crisis

No. 5:
Canada’s rental crisis

In 2017, real estate news wasn’t all about high housing prices— renters finally found a voice in mainstream media.

For many, the situation was tenuous, at best. In the nation’s biggest urban centres, rental properties were virtually impossible to find and, if found, rental costs were spiralling way out of control.

A few “the market dominates” opinions were offered, while “everyone deserves a home” responses were given, but the real story is that governments decided to act.

The Ontario Wynne government passed the Rental Fairness Act, 2017, which expanded rent control to all private rental units, including those occupied on or after November 1, 1991. (Only units built and on the market before November 1, 1991, were subject to rent control.) As of April 20, 2017, no landlords in Ontario can raise rents more than the rent increase guideline. In 2018, that annual rent increase has been sent to 1.8%.

In September, shortly after the rent control announcements, RioCon applied to convert 133 planned rental units, located on King Street West in Toronto, into condos. Jonathan Gitlin, senior vice-president of investments and residential at RioCan, explained that the company’s decision was due to the government’s policy change, which “reduced growth prospects for rental” units.

In the City of Vancouver, a pilot project was announced that would require all new rental buildings to include at least 20% below-market rental units in each development. The initial test will be in the Oakridge municipal town centre (an area along the Cambie corridor).

Chief city planner Gil Kelley hopes this pilot project will create 1,000 new rental units, aimed at tenants who earn between $30,000 and $80,000 per year. Studio units would rent for $850 to $1,000 per month, while a one-bedroom would cost $1,250 to $1,500 and a two-bedroom would cost $1,700 and $2,100 per month.

The carrot being using on the developers is that they will be allowed to build higher if they include these below-market rental units in their building complexes. If the idea pans out, Kelley says it could be rolled out citywide.

Supreme Court of Canada

No. 6:
Data privacy court decision

In early December 2017, the Federal Court of Appeal ruled against Canada’s largest real estate board and denied their recent appeal. The ruling was the latest development in a multi-year battle between the Competition Bureau and the Toronto Real Estate Board (TREB). In August 2017, TREB filed an appeal after a three-judge Competition Board tribunal panel ruled against the TREB in April 2017.

While there is now an expectation that Canadian consumers can now expect more access to homes sales data, the reality is that this information won’t come all that soon.

In December 2017, TREB filed a motion to stay the appeal—to stop the court decision from taking effect. Now, realtors, brokers, TREB, the Competition Bureau and interested third-parties, such as America’s real-estate behemoth, Zillow, must wait with baited breath. The stay requires Canada’s Supreme Court to decide whether or not they will rule on the matter.

real-estate-signs

No. 7:
No spring break and a fall

The nation’s two largest markets—the Greater Toronto Area and the Greater Vancouver Area—hit peak prices in the spring of 2017. Since, then, these markets have begun to lose their lustre. Sales activity has slumped over the past few months, amid various government rules and harsher mortgage guidelines (all aimed at curbing demand). This slump could’ve been evidence of a slower, more typical summer season or perhaps it was a slump that happened to coincide with the sharp increase in new listings (up 37% from 2016 in Toronto, alone). Either way, it was short lived. Agents in both cities reported a new surge of buying activity in November and December 2017. It’s possible that these buyers wanted to get ahead of the new mortgage stress test, or they saw a buying opportunity in a slumping market and jumped at the chance.

justin-trudeau-announces-federal-housing-plan-in-toronto
Prime Minister Justin Trudeau announces federal housing affordability plan in Toronto

No. 8:
National Housing Strategy fizzles, according to analysts

In mid-November, the federal government announced the details of its new 10-year National Housing Strategy (NHS). The plan includes the building of 100,000 new affordable housing units and the repair of 300,000 existing units. But if this strategy is to provide any relief to the housing market the government will have to move quickly.

Still, even if the NHS does translate to new units on the ground, it won’t help middle-class Canadians—those currently squeezed in the housing affordability crisis. It will, however, help the most vulnerable Canadians. As a result, over time the NHS may help the tightest housing markets, those with the most supply-side pressures.

Romana King
Romana King

Romana is an award-winning personal finance writer with an expertise in real estate. She is obsessed with the property marketplace and is the current Director of Content at Zolo.