The introduction of special taxes on foreign investors in Vancouver in 2016 and in Toronto in 2017 has logically brought down the proportion of foreign buyers in these two markets and made it inversely increase in Montreal.

The effect was predictable, but now allows us to draw two lessons: 1. These taxes work, in the sense that they reduce the pressure of foreign investors in the target markets; 2. As these taxes are local and specific initiatives, the pressure seems to be naturally redirected towards other real estate markets.

According to the Canada Mortgage and Housing Corporation (CMHC), there were 688 real estate transactions involving foreign buyers in the Montréal Census Metropolitan Area (CMA) between January and August 2018. This involves an increase of 11.5% compared to the same period in 2017 (617 transactions).

This recent increase in the number of foreign investors in Montreal made a lot of noise and has aroused several apprehensions, not always very rational. A rigorous and objective analysis of this phenomenon is important to prevent it from becoming the object of ill-intentioned populism.

But who are they?

First, some prejudices must be debunked: foreign buyers invest in the same way as Canadians. Graham Haines of the Ryerson City Building Institute assures that buyers statistically act with the same behavior, regardless of the color of their passport. In other words, the proportion of transactions made with speculative intent is the same for Canadian investors and non-residents.

Since 2016, taxes in Vancouver and Toronto have had the effect of redirecting a significant number of Chinese investors to the Montreal market. So that the citizens from mainland China became the first group of foreign buyers ahead of the French and Americans who traditionally shared the podium.

In Quebec, foreign investment in real estate is concentrated mainly in upscale condominiums and downtown Montreal (Ville-Marie, Griffintown and Nuns’ Island). The Department of Finance reports that single-family homes acquired by foreign buyers cost on average twice as much as those acquired by Quebecers, condominiums would be 40% more expensive.

A beneficial contribution

With real estate values in catch-up phase in Montreal and an underdeveloped territory (still a lot of vacant lots in downtown and in Old Montreal and large areas to requalify as the sector of Faubourgs and the sector Bridge-Bonaventure in particular ) the contribution of foreign investors must, to date, be considered beneficial. It should also be noted that the above-mentioned sectors are located in the zone favored by non-resident buyers.

Finally, it should be noted that the 688 transactions made in 2018 by foreign investors accounted for only 1.5% of total transactions in the CMA. This proportion is still negligible, especially when compared with data from Vancouver and Toronto.

To give an order of magnitude, the special tax in the Vancouver CMA in August 2016 decreased the proportion of foreign buyers from 14.8% to 3.2% a year later. On the Toronto side, the tax decreased that proportion from 7.2% in May 2017 to 5.6% in August of the same year.

If it is definitely too soon to talk about a possible tax on foreign investors in Montreal, it would probably be more effective to imagine a tax that would penalize a counterproductive practice, such as real estate speculation, rather than according to the buyer origins.

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Ismaël Gueymard

Author Ismaël Gueymard

Ismaël studied management at Paris-Dauphine University as well as in sociology and international management at the University of Quebec in Montreal. Trinational, he has acquired professional and academic experiences in Canada, the United States and France. Ismaël specializes in real estate, infrastructure and technology.

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