Builders Seek Extension of Vacant Home Tax in Toronto

Builders in Toronto are urging the city to give them an extension before they start having to pay a new tax on unsold housing units equivalent to 1% of the value of the home.

The new levy applies to condos or other homes that are owned by the developer if they have been vacant for more than six months in 2022 and are within the residential tax class.

David Wilkes, CEO of the Building Industry and Land Development Association (BILD), a builders group, told the Toronto Star that builders are asking for a “reasonable extension” that respects the intent of the law.”

“A two-year extension would certainly be something that would make sense for us,” he told the newspaper.

According to Wilkes, while most new condos in Toronto are pre-sold before construction begins, builders often have some unsold inventory after a building is occupied and has been registered on the municipal tax roll.

Wilkes called the new tax “prohibitive” because unsold units in condo developments tend to be the largest units with the highest prices.

The city introduced the new tax as a means of discouraging owners from leaving properties vacant in the midst of a severe housing shortage in Toronto, which has been partly due to a surge in immigration after the federal government loosened immigration laws and welcomed new residents as a solution to Canada’s labor shortage.

Meanwhile, Condo buyers who can no longer afford the mortgages for pre-construction condo deals are contacting brokers to try to get out of these purchase agreements with developers.

These buyers are telling agents they are increasingly concerned that they’ll be unable to close their purchase agreements because of higher interest rates, according to a report in the Toronto Star. Many of them jumped into variable-rate mortgages that they can no longer afford,

Realtors in the Greater Toronto Area (GTA) are noticing a rise in inquiries for assignment sales, a legal transaction in which the original pre-construction condo buyer transfers the rights and obligations of the purchase agreement to another buyer.

Royal LePage’s REC Canada (a full-service real estate sales and consulting brokerage) told the Star it is busy fielding inquiries from concerned buyers wanting to know how to get out of a purchase agreement with the developer.

New condo units in GTA are usually sold before a condo tower is constructed—sometimes several years before. Early last year, when Canada’s housing prices were soaring at the same time Toronto was hit with a wave of immigration, pre-purchasing of the condo pipeline was almost automatic.