(Recasts, adds portfolio manager and economist comments)
By Ethan Lou
TORONTO Oct 3 The Canadian government said on
Monday it will tighten mortgage rules and close a tax loophole
on home sales, seeking to rein in both foreign investors and
indebted consumers in its latest move to cool a market that some
have called a housing bubble.
While Finance Minister Bill Morneau said he believes the
overall housing market is "sound," the new measures would impact
the foreign investors many have blamed for high housing prices
as well as buyers and lenders who have driven Canada's massive
Analysts said the measures will likely send overseas buyers
to other markets while raising mortgage costs at home,
potentially dousing a market that is already losing steam.
"They didn't create the bubble, but they are making it
worse," said Hilliard MacBeth, an Edmonton-based portfolio
manager at RichardsonGMP who predicts a real estate crash.
"The government constantly does this ... the lending is too
loose on the way up and too tight on the way down."
Soaring prices in Canada's two most expensive markets,
Toronto and Vancouver, have raised concerns about a bubble and
speculation by foreigners, mostly from mainland China. Home
prices in Toronto and Vancouver have more than doubled in the
last 11 years.
The change to the capital gains tax on principal residences
was clearly aimed at foreign speculative demand, said Emanuella
Enenajor, senior Canada and U.S. economist at Bank of
America-Merrill Lynch in New York.
"But Canada has very limited not very reliable information
about foreign presence, so calibrating policy that targets
foreign demand with blurred vision, there's a lot of risk. It
can be too strong, too aggressive, or not do enough," Enenajor
Vancouver sales fell sharply in August after a 15 percent
tax was imposed on foreign buyers, and policymakers there also
promised to tax vacant homes to discourage absentee investment
from overseas amid complaints that wealthy Chinese buyers have
made houses unaffordable for locals.
Some believe those measures just drove foreign investors
eastward to Toronto, forcing the government to act again.
"If anything it appears foreign buyers have shifted from
Vancouver to Toronto, it's really Toronto that is the main
concern now, with prices up 17 percent in the past year," said
Sal Guatieri, senior economist at BMO Capital Markets, who
warned the tightening may not be over.
"If these measures prove ineffective in cooling these two
hot regions or in slowing credit growth, the government could do
(Reporting by Ethan Lou in Toronto and Andrea Hopkins in
Ottawa; Editing by Meredith Mazzilli and Frances Kerry)