What's really driving Toronto's red-hot real estate market

Ontario Premier Kathleen Wynne is signalling she won't follow British Columbia's lead and slap a tax on foreign buyers of residential real estate in the Toronto area.

People who watch the Toronto market closely say that makes sense, arguing that foreign buyers are a limitedfactor in driving up local prices. They're pointing to a different, home-grownsource of the surge in demand: investors who are buying houses not as a place to live, but as a place to grow their money.

The craze has thrustmany would-be investors into a market with a limited housing supply, where they competewith people who want to buy a home to live in, bidding up prices.

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Toronto-area real estate agents say domestic investors have grown to make up 25 per cent of their client base, according to a recent survey byBenMyers, who researches trends in residentialreal estate for Fortress Real Developments.

"I was actually surprisedit was thathigh,"Myerstold CBC News."It's a large percentage of the market and much more concerning than foreign buyers."

He estimates thatforeign buyers make up no more than five to 10 per cent of home purchasers in the Toronto area, and are primarily focused on the pre-construction high-rise condo market.

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His figures mesh with a new report by condo research firm Urbanation that finds 10 times more domestic investors than foreign buyers in the market for new high-rise units in Toronto.

Myers said the growth in domestic investors makes sense, given the state of the market. "When you have a situation where prices are going up rapidly, you're going to see more investors," he said.

'Thousands' of extra buyers competing

As president ofthe real estate brokerageRealosophy, John Pasalisemphasizes the power of data in helping homebuyers understand the market. He concurs with Byers's findings about growing demand by investors.

"We've seen it in actually pretty significant numbers," Pasalis said in an interview with CBC News.

Investor interest is bringing "thousands of new buyers to the market who otherwise would not have been there," Pasalis said. "It basically is adding a significant number of offers on every propertyand is driving up house prices as a result."

The investors are often ordinary homeowners not high-rolling business people who use the equity in their primary residence to buy another house in an attempt to capitalize on the hot market, said Pasalis. "When they see prices going up 10 to 15 and now 20 per cent a year, it looks like a no-brainer."

There are also several ways an investor has a leg up in a bidding war over people looking to buya home to live in. They don't have to make an offer conditional on selling their existing home and will often bypass a home inspection. They have big tax advantages too: Their mortgage interest payments and renovation costs are tax deductible off any income they earn from renting the house.

Pasalisadds that the investor is able to bid higher on a fixer-upper because the buyer who plans to live in a home likely wants to set aside more money for renovations than the landlord whowill rent the place out.

Wynne 'looking at all options'

CBC News asked the Ontario premier on Monday if she is ruling out a foreign-buyers taxfor the GTA.

She replied, "B.C. has put in place a particular mechanism, we are not going to use that mechanism."

Wynne said the "heart of the problem," she wants to tackle is affordability for first-time homebuyers.

So, can the provincial government do anything to dampen the effect of investors driving up house prices?

"That is a question I haveasked," said Wynne. "I don't know whether there's anything that we can do. We're looking at all the options."

Wynnesays shewants to avoid makingany moves that would significantly hurt the value of the homes that people already own.

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