The Canadian luxury real estate market has captured the attention of wealthy homebuyers, investors, and public policymakers. As the broader Canadian housing sector balloons to levels unseen in decades, the luxury real estate industry is popping, too. And the government wants a slice of the pie.
In Toronto, for example, lawmakers are proposing a luxury home tax on properties valued at more than $2 million. The levy would generate approximately $18.7 million, which would be allocated to affordable housing and public transit projects. These properties, from mansions to McMansions, would be subjected to a tax of 3.5 per cent, in addition to the 2.5 per cent municipal land transfer tax and provincial fees.
If approved, North America’s fourth-largest city would be the only jurisdiction in Canada to adopt the tax. But industry observers warn that it would make Toronto real estate even less accessible to the average buyer since it would apply pressure to an already strained inventory.
“In reality, $18 million is not going to go very far in terms of affordable housing and transit developments,” says Christopher Alexander, Chief Strategy Officer and Executive Vice President at RE/MAX of Ontario-Atlantic Canada. “The tax would further tighten inventory and create another barrier for sellers to consider when they list their homes. What we’re hearing from consumers right now is, ‘I’d sell, but where am I going to go?’ This tax would only stiffen our already existing supply issue in Toronto, which is not what we need right now.”
But if Toronto goes ahead with this proposal, will others follow suit? At a time when politicians and bureaucrats are pushed to do something to ease current market conditions, other Canadian regions may also be considering similar measures.
That said, where are the hottest Canadian luxury real estate markets right now anyway? Let’s take a look at some of the performances so far this year within some local markets across the country.
Luxury Real Estate Markets Across Canada Are Thriving
Calgary’s luxury real estate market has been surprising to many market analysts, mainly because the city is only now beginning to recover from the coronavirus-induced economic downturn. The Albertan city was slow to the real estate party, but now it is reporting significant gains across multiple property categories. When it comes to the luxury residential real estate market, sales of homes worth more than $1 million spiked 119 per cent year-over-year. One luxury condominium valued at $1 million was sold.
Although no ultra-luxury properties worth more than $10 million were sold, residential sales of homes north of $1 million increased 27 per cent year-over-year in the January-to-February period. This included two transactions involving residential properties with price tags of more than $4 million.
Sales of Toronto homes worth more than $4 million surged 157 per cent year-over-year in the first two months of 2021. Compare this to the Toronto Regional Real Estate Board’s (TRREB) 52 per cent gain across all price ranges. Interestingly enough, five residential properties worth more than $10 million were sold, compared to only one in the previous year.
Vancouver’s luxury market was also booming in January and February of this year. Residential real estates of properties worth more than $4 million advanced at an annualized rate of 41 per cent. Experts are already preparing buyers and sellers for a busy spring, with sales already growing 175 per cent in the first half of March. One Vancouver property valued at more than $10 million was sold during this period.
What is Driving the Luxury Real Estate Market?
Despite the country going through a brief but steep recession, how could the luxury real estate market be booming across the Great White North? It is the same reason why the rest of the housing sector has been going through the roof and posting record gains: pent-up savings and high-income Canadians taking advantage of the impressive stock market gains and scooping up these high-end residences. A November 2020 CIBC report discovered that the coronavirus pandemic initiated the biggest cash accumulation in the nation’s history. What better way to employ your capital than by purchasing real estate?
Home renovations activity has also been climbing as more Canadians stay at home, and market analysts forecast that the industry will rebound to $80 billion this year. At the same time, the cost of raw materials, from lumber to steel, has been skyrocketing.
From a resurgence in urban luxury condominiums to multi-generational influences, to general optimism, there are many factors at play that explain how multi-million-dollar homes could be selling in today’s economic environment. Can the market be sustained? Whether through the tightening of mortgage lending rules or the Bank of Canada (BoC) raising interest rates, market observers project that this segment of the market could cool down over the next 12 to 18 months.