Toronto Income Property Newsletter – November 2007

Here’s some good news after the approval of the new Toronto Land Transfer Tax in October. According to the National Post, the Canada Mortgage & Housing Corp. (CMHC) has decided to let Canadians buy investment properties with no down payment. Apparently they have quietly introduced changes that lower the down-payment threshold for an investment property. Canadians who qualify will be able to purchase an income property and or several more with no money down. The mortgage insurance for the new product is 7.25% of the total amount of the loan.

“These enhancements will ensure continued supply of affordable rental accommodation across Canada,” said Pierre Serre, vice-president of insurance products with CMHC.

I haven’t been able to find out too much more information so far. Their website isn’t reporting anything on this yet but obviously I will be watching this very closely.

The reaction to the newly imposed Toronto Land Transfer Tax has been mixed. The Toronto Real Estate Board worked very hard to oppose this tax as did many local real estate agents. TREB took a strong position to oppose this tax as unfair in principle and refused to compromise. As a direct result of this strong position they feel that City Council was forced to make a number of amendments to the City’s original proposal, including rebates for first-time buyers, a reduced rate, and grandfathering for existing transactions.

On the other hand, some folks feel that the market can absorb this tax and it will ultimately help in the City’s current cash shortfall. There are others who claim that despite how much realtors may have opposed the tax, aren’t we often indirectly responsible for driving up the prices of homes through things like blind multiple offers or camping out at new condo developments to make a quick commission?

Since I sell income properties I have to look at this tax in terms of adding to the overall cost of the building at closing, thereby reducing my anticipated returns. Will this tax stop people from purchasing duplexes or triplexes for investment? I think if your margin is so tight that this new tax (which at most will be 2%) makes the difference then it probably isn’t too great an investment to begin with.

For those of you who are unfamiliar with how the new Toronto Land Transfer tax will work, it is like this:

There will be a second land transfer tax, on top of the provincial land transfer tax, at the following rates:

For residential homes there is an easy-to-use residential calculator is available at The rates are as follows:

0.5% of the amount of the purchase price up to and including $55,000

1% of the amount of the purchase price between $55,000 and $400,000

2% of the amount of the purchase price above $400,000

For commercial and industrial properties the rates are:

0.5% of the amount of the purchase price up to and including $55,000

1% of the amount of the purchase price between $55,000 and $400,000

1.5% of the amount between $400,000 and $40 million

1% of the amount above $40 million

First time home buyers of new and re-sale homes will receive a rebate of the Toronto land transfer tax of up to $3,725 (this equals a 100% rebate on homes purchased for up to $400,000). Teranet will be collecting the Toronto land transfer tax for the City of Toronto. Once the City’s first-time buyer policy is reflected in Teranet’s collection system, first-time buyer transactions will be exempt from the Toronto land transfer tax at the time of registration. Until that time, first-time buyer transactions will be charged the Toronto land transfer tax, which will then be rebated by the City of Toronto. The City has indicated that the necessary changes to Teranet’s system will be implemented in the “spring of 2008”.

This all goes into effect February 1st next year.

I read a story the other day that stated that construction projects in downtown Toronto are at the highest rate ever! Think about that for a second. When you are constantly hearing about the dollar and real estate issues in the U.S., you have to wonder if this city can ultimately sustain all this development and leave all the participatory investors unscathed. There are now four high-end hotels going up (the Ritz, Trump, Four Seasons & Shangri-la). It seems like a bit of a glut of top-notch accommodation to me – especially when we’ve gone this long without any. There are a lot of condo projects going up in the core as well but so long as they’re hitting their pre-sale numbers, I suppose the developers are happy and will continue to seek out new locales.

That’s it for now. We’re now less than two months to Christmas and wrapping up another year. Boy, does time fly fast. I look forward to putting out my Live for Free book (see cover below) and getting into the world of self-publishing in 2008. It will also definitely be another interesting year for real estate in Toronto.

See you next month.


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