Torontonians are hard-pressed to try and forget the northern Toronto bungalow that was listed last month somewhere in the area of $400,000 – only to have the buyer take on a $1 million Toronto mortgage to buy it. The buyer? A university student from China, studying in Canada and buying the home for his parents, who run a business in the States. While the sale raised eyebrows and made for great water-cooler-conversation the next day, it also has many upset. Why? For the simple reason that a foreign investor scooped up a property for a price far out of reach for those who could domestically buy it. After all, why do we want to give away all our assets to people who don’t even live in the country?
The simple, and most obvious reason, is because they bring money into Canada. Sure, they don’t pay taxes here over the course of their entire lives – one of the biggest arguments people have for keeping them out. But they do pay exorbitant amounts of money for properties, and they do pay taxes on those properties – which equals lots and lots of money being funneled into Canada. Yes, there were most likely some Torontonians that thought that bungalow in the northern part of the city was just right for them. But, after it was purchased, those Toronto buyers probably quickly found another property to scoop up. In Toronto, there are no shortage of homes, condos, and other properties – and there’s lots to go around.
But there’s another reason why foreign investors are so important to the Canadian economy – especially in its current condition. That is, to keep the bubble that so many real estate agents and some Toronto mortgage brokers are worried about, from bursting. The fear is that with homes so overvalued in the Toronto area right now, once interest rates go up, buyers will leave the market and home prices (and therefore, values) will go down. This could have very detrimental effects including leaving many Toronto homeowners with mortgages that are underwater. But as long as foreign investors – and their cash supply – keep coming, we’re fine.
That’s because even as Torontonians begin to pull out of the market, slightly higher interest rates aren’t likely to push foreign investors out of it. Even a small increase of 1%-2%, which it’s not likely to go over within the next year, would still keep many foreign investors interested, and continuing to buy our property. This in turn, will keep our bubble from bursting.
Foreign investors have been a huge part of the Toronto market for decades. They help to fuel our economy, and make Toronto’s housing market one of the strongest in the country – no matter how high prices or interest rates go. To restrict them and forbid them from buying our properties would mean that there was more inventory on the market for domestic buyers. However, it would also likely mean that the housing market, and the Toronto economy, would take a hit that would be much harder felt than simply looking a little harder and longer for a house.
