Behind the Headlines: The Truth about Toronto’s 9.5% Property Tax Surge, TRESA Turmoil, and the Countdown to Interest Rate Announcements
February 7, 2024
There’s a lot of talk about what’s happening with housing in Toronto and the real estate market in general, so here is my take on the property tax increase, TRESA, and interest rates.
It was recently announced that the city was proposing an increase to property taxes of 10.5%, or even as much as 16.5%, depending on how much help the Federal government was going to give the city. In the end, it’s understood the property tax increase will land around a 9.5% increased… still a big pill to swallow for some.
Although an almost double-digit increase sounds like a lot, it will work out to about $30 more per month for the average Toronto homeowner and likely something that most homeowners will be able to absorb. For those with variable rate mortgages currently feeling the pinch, a potential interest rate reduction later this year may save more than that.
Toronto homeowners pay some of the lowest property taxes in the region.
Here’s a good piece from the Star with come clear explanations of how property tax is calculated.
TRESA, aka the Trust in Real Estate Services Act will affect buyers and sellers. If you want to know everything about the changes, click here.
However, the one change that will affect buyers and sellers is that both sides now have the ability to have open bids. Before, in a multiple offer situation, the only person who knew the details of each offer was the seller.
I don’t have a problem with this in theory, because buyers have some protection. They can insert a clause in their offer that says if the seller discloses any details of their offer, they have the opportunity to revoke the offer within an hour of finding out that the details of their offer were being made public. I don’t know why any buyer wouldn’t want to have that clause, because even if a buyer wants their information kept secret, they can still see what’s in the other offers.
The problem is with all the options sellers have. Not only can the seller pick and choose which parts of the offers they receive to be transparent about (deposit, closing date, offer amount), they can also remove those options if they send bidders back to sweeten their offers.
One reason a seller might want to be open about the offers: the bidder with the highest offer may have a closing date that doesn’t work, which gives the seller an opportunity to give the next person in line, who’s closing date does work, the ability to match the other offer.
A disadvantage to being open could be that one bidder wants the property so badly they offer significantly more than anybody else. Without transparency, only the seller knows the difference between the top two bids. But with open bidding, a seller could receive less – the top bidder may offer only a few thousand more than the second highest.
The benefit for buyers would be the knowledge of how close their bid was and whether it makes sense for them to continue, or if they’re so far below the other offers they should drop out.
We’ll see how this plays out. The advantage of having the legislation come into effect now is, with the market being less competitive than it was, there are fewer situations with multiple offers, so it won’t be chaos across the city.
Finally, let’s talk about interest rates. Phil Soper, president of Royal LePage, doesn’t think it’ll be interest rate reductions that spur on the market, it’ll be consumer confidence that the price they pay for a home will increase. I hate to disagree but as I mentioned last month, I think even a small decrease in the overnight rate will make a difference in the volume of homes listed and sold this spring. The first announcement was on January 24 and the rate held. There will be further announcements on March 6 and April 10. My prediction is Toronto’s real estate market will rise again…. but it may be a few months before we see some serious movement.