What’s the secret to America’s north neighbor i.e., Canada maintaining a thriving real estate market? Will it have an effect on the American real estate market, or should US residents consider investing in Canadian real estate?
As Americans continue to wonder if Canada’s hot real estate market will become replicated in the US, it has become imperative to discuss how Canada has been able to sustain its hot real estate beds, especially in Toronto.
It is pretty interesting to note that Canada is the 2nd largest country in the world, yet it has a population of fewer than 40 million people. This is even more reason to be curious about the disproportionate real estate growth Canada is experiencing- especially with regards to the growth of home prices in its largest city, the Greater Toronto Area.
Why is there a Significant Growth in Home Prices in Toronto?
First, Toronto is unique because there aren’t a lot of cities like it- with a wide range of professional jobs in Canada, and this helps the Greater Toronto Area (GTA) to stand out amongst other cities.
With this vast professional range, the GTA has succeeded in attracting a lot of skilled workers, and one in three talented immigrants who move to Canada end up working and living in Toronto. Also, both the federal and provincial governments are providing first time home buyer incentives, which also boost the real estate market in Canada. While Toronto city hall introduced the municipal land transfer tax beside the provincial one, it also introduced a rebate for the 1st time home buyers to cover part of this cost.
“This Hot Market can be Felt in Smaller Cities in Ontario. Does this Make it Contagious?”
As this hot real estate market has extended to smaller cities in Ontario, you might be wondering if it is contagious. It is sort of contagious, and this is because when the value of real estate goes up in a specific city, people might start to consider investing in neighboring cities real estate (because of proximity) by taking money out of their already appreciated real estate properties. This then results in a concurrent rise in real estate prices in such neighboring areas. This happened in Ontario in which first the home prices grew in only the Toronto area, but then all close cities felt the hot real estate markets and the real estate prices increased in almost any cities around Toronto.
Will There be a Resultant Impact on the US’ Southern States?
This is another common assumption that southern states of the US might be significantly impacted by the real estate price surge in Toronto. This is largely untrue, as the number of Canadians who are willing to invest in the US isn’t high.
While a lot of older Canadians (a.k.a. snowbirds) already visit Florida in winter, there’s nothing much to suggest that the interest of Canadians in real estate in other states like New York or Massachusetts is increasing.
Any Helpful Tips for Potential Real Estate Investors in Ontario?
While it is still safe to invest in Canadian cities at the moment, especially in Ontario, one should know how to play with these hot markets. Some great tips to help you invest correctly are:
1. Find a Really Good Local Real Estate Agent
This is the first step to take towards making a superb real estate investment, especially if you aren’t familiar with houses in this area. Your search for real estate agents should be specific for the region you’d like to purchase a house. To find the best local real estate agents in Canada, you can check out Wowa. It gives an option to both buyers and sellers to check the previous real estate transactions of real estate agents to ensure that they have sufficient local experience.
As the real estate prices have increased in Toronto in the last 10 years, the real estate agents’ commissions have also increased since their commission is a percentage of the property value. Consequently, some agents are willing to pay part of their commissions back to the customers to attract new customers. This could be as much as 1% of the property value, which could be more than $10k if you are buying a property above $1M.
2. Avoid Foreign Tax!
Homebuyers in Ontario who are not citizens or permanent residents of Canada are to pay a 15% tax on the purchase of residential property i.e., the Non-Resident Speculation Tax, which started from the 21st of April, 2017.
However, some areas in Ontario e.g., London, Ottawa, do not require the payment of this foreign tax, and you could choose to invest in these areas for that reason. Even if you want to get residential property in an area where this tax is to be paid, by buying the property in the name of a Canada-registered company, you may avoid the payment of this tax.
3. Get Good Mortgage Rates & Terms
Unlike the United States where fixed mortgages are often for 15 or 30 years, Canada’s mortgage terms are much lower, at an average of 5-year mortgage terms. As well, Canadian banks wouldn’t recognize your US credit score, meaning you’d be ineligible for the mortgage on the basis of a credit score by Canadian banks. A smart option is to borrow money from a US bank (aided by your US credit score) to buy a property in Canada, as this also affords you the opportunity of a well-spaced out mortgage term in the US while maintaining your enviable property in Canada.
Although Toronto’s real estate market is contagious horizontally i.e., within Canada, the effects are not felt in the United States because of the particular factors that make the market thrive. Hence, US citizens should leverage on the lengthy mortgage terms afforded them by American banks, and with the aid of a savvy real estate agent, they can also cash in on the Canadian real estate hotbed!