Canadian cooling measures working a bit too wellEducation | Natalie Wong 12 Jul 2018
Canada set out to cool a hot housing market, and did it ever. Luxury property sales in the nation's priciest markets fell sharply in the first half amid a slew of government regulations, according to a report by Sotheby's International Realty Canada.
Sales of homes above C$1 million (HK$5.98 million) fell 46 percent in Toronto and 19 percent in Vancouver from a year earlier, while the number of homes that sold above C$4 million dropped 51 percent in Toronto and 47 percent in Vancouver.
The declines follow a wave of lending constraints and taxes implemented by both the federal and provincial governments to tame soaring prices fueled by speculative purchases.
"The collision of rising mortgage rates, stricter lending guidelines and cascading governmental policies and taxes" have hurt a number of important Canadian markets, said Brad Henderson, president and chief executive of the Sotheby's unit.
In the condominium subcategory, Vancouver bucked the trend, as buyers who were priced out of houses turned toward the high-rise alternative.
That saw sales of condos that cost above C$1 million rose 9 percent, and 35 percent for condos above C$4 million.
In a city where the benchmark selling price for a detached house was C$1,598,200 last month, a C$1 million condo still looks pretty good, with growing demand from young families and professionals.
"There's a belief that condos, in particular new condos, are going to continue to be a good investment notwithstanding some of the interim policy measures, and that the market will be able to absorb it and to move on," Henderson said.
In Toronto, on the other hand, sales of condos above C$1 million dropped 13 percent to 658 units.
Sales of condos over C$4 million slumped even more, down 40 percent.
Henderson sees the Toronto luxury market staging a rebound in the second half, when the comparison won't be as tough as it was to the hot first half of last year.
The rebound may take slightly longer in Vancouver, as the market continues to adjust to new policy changes by the provincial government, he said.
Montreal was the only major Canadian city in Sotheby's report to see overall growth in luxury sales from last year's first half, with homes above C$1 million jumping 24 percent to 460 sales.
The bustling market was protected from the sort of provincial and municipal policies used in Toronto and Vancouver to control prices, Sotheby's said.
Henderson predicts it will level off in the third quarter.
Despite "sluggish" home-price growth in the first half, prices will likely rise 1.9 percent over the next three months, according to a report released by Royal LePage.
Prices in the Toronto region are seen rising 2.1 percent to C$838,984 from last quarter and Vancouver is expected to go up by 1.5 percent to C$1,289,120.
"The market has begun to absorb and adjust to the new realities," said Phil Soper, president and CEO of Royal LePage. "The fundamentals have not changed. The economy is strong and unemployment is very low. We face shortages in our major cities, with many more people looking for homes than the market has available for purchase or rent.
"Upward pressure on prices will likely return to most markets during the third quarter."
Two wild cards that could tamp down a rebound in Toronto and Vancouver: escalating trade tensions with the United States and interest rate increases by the Bank of Canada.