Toronto’s Luxury Home Market Braces for New Tax in 2024
As a new tax for homes over $3 million is set to come into effect in January 2024, buyers and sellers in the luxury market are doing everything they can to beat the buzzer. The “luxury tax,” which will increase based on the value of the home, is expected to impact the Toronto real estate market, especially for homes in the $8 million range and above.
Significant Buyer Attraction in the Luxury Market
Barry Cohen, president of RE/MAX Realtron Barry Cohen Homes Inc., has noticed a significant buyer attraction for homes over $8 million. The land transfer tax, or “luxury tax,” will begin at a 3.5% tax for homes over $3 million up to $4 million and will go all the way up to 7.5% for homes valued at more than $20 million. For a $4 million home, that would amount to a $10,000 difference in land transfer taxes compared to the current structure. For homes in the $8 million range and above, the additional costs hit six figures.
“For people who want to avoid the taxes, it’s more the homes over $7, $8 million where the amount starts feeling significant to buyers,” Cohen said. “So the uber high-end has got their eye on vacant homes, because they see them as attractive, that the sellers could close with them by Dec. 31.”
Finding Ways to Close Before the Deadline
Cailey Heaps, president of Heaps Estrin Real Estate Brokerage, said sellers and buyers are finding ways to close before the Dec. 31 deadline even if homes aren’t vacant. “Some people are buying to close quickly, and then rent it back to the seller so that the sellers aren’t rushed to leave. The workaround is the renting back solution.”
Cohen has noticed a similar trend. “Buyers are saying, ‘If we were closing in April anyway, I’ll buy it now, rent your house back to you. You pay your utilities and taxes and I won’t charge you rent,’” he said. “And they’ll do it because they’re saving on a whopping tax.”
An Increase in Sales and Listings for Luxury Homes
Comparing the numbers of sales and listings for luxury homes from September to November this year to last year, Cohen has specifically seen an increase in sales and listings for homes over $10 million. In the same period of 2022, there were no sales of homes over $10 million. This year, there were seven. There has also been an increase in over $10 million home listings in October and November compared to last year — from just eight in 2022 to 25 in 2023.
However, Cohen noted that these numbers don’t reflect the full picture, as several off-market networks, where realtors share listings in Whatsapp or Facebook groups or privately instead of listing on MLS, have emerged since COVID and are particularly popular for luxury homes.
Ultra High-End Market Already Performing Well
Overall, Heaps said that the ultra high-end market has already been performing well lately compared to the rest of the market. “Interest rates have less of an impact for these people,” she said. “And now that segment of the market is motivated to move quickly based on the impending land transfer tax.”
Heaps anticipates a slower start to 2024 as people adjust to the changes within the market. For 2024, Cohen said the effect on the market depends on what happens in those first few months. “There could be some price adjustments, and you might have sellers agreeing to pay the excess buyer tax.”
Ultimately, Cohen said it’s just a matter of time before everyone accepts this luxury tax as the new normal: “Toronto is a very accepting market. I think by June, there will be complete acceptance, in perfect Canadian form.”
Orginal article: Link To Article – provided by Kansas City Realtors