But report warns of the tax implications constraining the uber-luxe market
Spring should bring heightened activity in Canada’s luxury home sales market, building on interest shown by buyers at the start of the year and exceeding gains made in the wider housing market.
A report published today (April 2) by RE/MAX Canada shows that luxury homebuying activity in the first two months of 2024 increased across nine of the ten markets it has analyzed, with two thirds of the markets recorded double-digit sales gains.
This is despite a disconnect between buyers looking for deals and sellers who are hoping for better returns on their investments as seen during the Covid years. But the market is being fuelled by lower overall values, strong equity gains, and the easing of interest rate hikes with expectation of decreases ahead.
Leading the sales gains for the luxury housing market is Saskatoon with a 57% uptick, with Montreal and Calgary close behind with 56% and 51% gains respectively. However, Ottawa was the only market that saw a year-over-year decline (of 8%).
Overall, the figures suggest a return to health for Canada’s major centres, although they remain below the peak levels seen during the pandemic.
"The ripple effect is already underway, with stronger home-buying activity at lower price points pushing sales into the upper end,” according to RE/MAX Canada president Christopher Alexander. “In some cities where inventory levels are particularly challenging at the lower end, multiple offers have returned with a vengeance. While that isn't the case at the top end, pent-up demand does exist, and activity is gaining momentum."
Equity gains
For buyers who got into the luxury markets at the end of the last decade, equity has increased substantially, although they have eased in recent years. This is driving demand as owners look to move up the ladder.
“For example, in the Greater Toronto market, buyers who purchased homes at an average price in 2018 saw equity rise by almost 43% by the end of 2023 ($787,842/$1,126,591),” explained Alexander. “These buyers are coming to the table with a larger downstroke and reduced risk from a lending perspective."
Younger buyers are also looking to enter the market as equity gains made in more modest homes provide them with the springboard they need for a luxury purchase. Some markets are proving popular for their lower prices compared to the largest centres. London (drawing buyers from the Greater Toronto Area), Halifax, Calgary, Edmonton and Saskatoon (drawing buyers from Ontario and British Columbia) are all seeing increased interest.
But curbs on foreign buyers are taking their toll on some markets.
"While the idea of a Foreign Buyer Ban sounds good in principle, it makes less sense in practice," said Alexander. "The ban was originally intended to make a greater number of properties available to Canadians and reduce upward pressure on housing values. The Bank of Canada's 10 rate hikes were all that was needed to achieve that objective, all the while supply remains at historical lows."
Tax implications
As well as constrained supply, buyers are finding challenging tax implications of a move into the luxury market.
This is particularly an issue for the uber-luxe market, predominantly in the GTA where land taxes for a $4 million home selling in the City of Toronto would be near $183K, more than double that of a similar priced home in Vancouver.
Overall, Alexander believes that the outlook is positive for Canada’s luxury housing market.
"Assuming a continuation of current economic fundamentals, momentum is set to climb at luxury price points from coast to coast," he said. "With recent inflation numbers coming in lower than expectations at 2.8%, the possibility of further improvement in interest rates only strengthens growing optimism. Yet, there is an air of caution as the challenges of recent years remain fresh in the minds of buyers and sellers. Confidence is building, with the light at the end of the tunnel clearly visible. Demand is coming from a mix of high-income professionals/executives, retirees, empty-nesters, Gen X and millennials, newly landed immigrants, as well as large and multigenerational families – a good sign, as the diversity of buyers at the top end of the market today bodes well for its overall health in the future."
