Canadians see investment value in homes despite concerns

Several policy and economic factors may be barriers to homeownership according to new RE/MAX Canada report

Canadians see investment value in homes despite concerns
Steve Randall

Uncertainty remains in several key areas of Canadian life, but it’s not dampening belief in homes as an investment.

More than 6 in 10 respondents to a Leger survey conducted earlier this month agree that real estate is the best long-term investment they could make.

They also don’t believe this will change in the next five years, despite some signs that the red-hot market may be cooling in some metropolitan areas due to rising rates and inflation.

The poll was part of a new report from RE/MAX Canada and also reveals the concerns that Canadians have about buying a home in the years ahead.

Property-related taxes increasing (64%), followed by rising interest rates (58%), and a potential capital gains tax hike (55%) were cited as potential barriers to homebuying ambitions in the next five years.

Ontario hikes tax

With the significant increase in home prices seen recently, building on already high prices pre-pandemic, Ontario has announced this week that it’s expanding its Non-Resident Speculation Tax to 20% from the current 15%, and expanding it province-wide rather than just for homes in the Greater Golden Horseshoe.

There will be rebates for newcomers that commit to live in the province. This aims to dissuade speculative investments in the region’s housing market. A Vacant Homes Tax is also being discussed with other provinces.

Top three worries about buying a home are also led by taxation (50%) and rising interest rates (46%), but also include the possibility of an economic recession (42%).

"Extraordinary housing activity over the past two years has caused a great deal of uncertainty and anxiety among many Canadian homebuyers, sellers, and those who aspire to enter the market,” commented Christopher Alexander, president of RE/MAX Canada.

Market trajectory

The report, Unlocking the Future: A 5 Year Outlook aims to ease some of the fears of homebuyers and would-be homebuyers, by modelling some scenarios for the Canadian housing market’s trajectory.

Drawing on the experience of CIBC deputy chief economist Benjamin Tal, and tax and estate planning managing director Jamie Golombek; plus the Conference Board of Canada; the report is designed to help Canadians take a longer-term view of their investments.

Key takeaways include expectation that interest rates rising four times per year, would create a stable and more relaxed housing market over the next five years.

Removing the exemption on capital gains for principal residences could have a greater impact on market disruption than the often-cited tax on foreign homebuyers and other measures that have been used in recent years to calm the market.

"As a scenario-based exercise, chapter one also looks at the scenarios that could potentially 'upset the applecart' should the Bank of Canada overreach in fighting inflation, politicians fail to tie immigration policy to our labour market needs, or our governments seek to rein-in deficits with aggressive new taxes. While we anticipate it could be a stable five years ahead, it's by no means assured."

Based on survey respondents, the areas that should be in highest demand in five years’ time are suburban (37% said their preferred community would be suburban) while 30% want to live in an urban environment, and 27% said rural.