Toronto is proposing it's own land transfer tax on all properties sold in Toronto. This is on top of the existing Land Transfer Tax that is levied by the Ontario government. Under the powers that were recently given to the City of Toronto, under the new City of Toronto Act, you could be required to pay an additional 0.5% of the purchase price in the form of a land transfer tax if you purchase a home in the boundaries of the City of Toronto.
This means that the average home (approx. $380,000 in Toronto for 2006) will cost an extra $1,900 that can not be put into the mortgage, according to the Toronto Real Estate Board. However, the average sale price for a home in February, in the central districts on the Toronto MLS® system, was $504,381 which would mean an extra tax of $2,521.91.
So how is this likely to effect your home's value? It could undermine the
Toronto real estate markets. If you are in the upper end of homes the effects may not be
initially visible, although it will make homes outside of the Toronto boundaries a lot more attractive. However, if your home is best suited for a first time home buyer then this will hit your bottom line.
A large number of first time home buyers are purchasing their home with only 5% down and a 95% mortgage. Even with this amount of leveraging they are often pressed to make the 5% and all of their closing costs. Some buyers are even getting 100% mortgages. If the buyer for your home (asking $300,000) has to take $1,500 out of their down payment to cover extra closing costs this will decrease their buying power by $30,000 (if $1,500 = 5% then 100% =$30,000). Since this will effect all homes and all buyers this is
likely to decrease the value of your home by 10%.
You will also see fewer home sales as people who are using the 100% mortgage programs will have to wait longer to save up their closing costs. This could see a trend to have the seller paying for the buyer's closing costs, like you see in the USA sometimes, however that may be seen as a form of mortgage fraud depending on how you interpret the payment.
This effect on lower cost housing may dramatically effect the second home and luxury home markets. As people may need to stay in their "first step" home longer in order to save up the equity to pay for the extra closing costs. Which could take a long time if their property value drops 10% due to the introduction of this transfer tax. This could lead to a higher percentage of 95% mortgages on second home which could cause the prices in those markets to also fall by as much as 10%.
The bottom line is that a simple
0.5% land transfer tax will undermine the affordability of homes in Toronto, which is already one of the highest priced cities in Canada. Property values will get undermined, along with affordability, causing your property to lose value, which will decrease the number of sales in the Toronto area.
Studies have shown that every resale home causes around $27,000 in spin off spending. This would be for anything from new appliances to renovations. All of which generates taxes as well as boosting the economy. If the number of home sales decreases because of a newly created tax then the Toronto economy will be effected as well as the taxes that are generated through those purchases.
So what can you do? Send an email to Mayor Miller,
here, to let him know that you do not approve of this tax. Also, contact your local councilors and let them know. You can find your councilor's contact information at the
City’s Councillors web page.
