Borrowing an idea from China could lend a helping hand to first-time homebuyers in Toronto, the head of a major real estate website suggests.
“A program like China’s ‘joint ownership’ scheme would definitely help first-time buyers in Toronto,” says Carrie Law, the CEO of Juwai.com’s—a site that links overseas Chinese buyers to international property listings—in an email statement to Harvey Kalles Real Estate.
China’s joint ownership program, which the Chinese government announced last year it was piloting in six cities, works like this: a homebuyer lays out 40 per cent of the price of a new home, and the government pays the rest, maintaining a proportionate share in the property.
Because of this, there are restrictions, as Law notes. “When they sell, they cannot just put the home on the market in the traditional way,” he explains. “The government has the first right to buy their share—which it will then resell to another owner-occupier. This keeps all the homes in the system.”
There are other stipulations. To participate in the program, applicants must agree to own the home for at least five years and can’t own another property.
“The government promises it will pay a fair market price when it repurchases ownership, but that is still years down the track, and it is not clear how this will be determined,” says Law. “That’s the biggest uncertainty in the program,” he adds.
Nonetheless Law says that so far close to 1,000 young people have bought new homes through the program, paying about a third of the market price for their properties. Some 120,000 people applied for the program’s initial launch of 427 units. “Interestingly, the first of these homes were developed in an upmarket part of Beijing. I wonder if wealthy Toronto neighbourhoods would welcome a project like this with open arms,” he says.
The first occupants of these part-owned units in Beijing paid about $3,700 per square metre in Canadian funds, Law says. “A typical apartment in the same neighbourhood of Beijing” would run purchasers $11,000 per square metre.
“Would young Torontonians be willing to embrace a program like this? It is hard to see why not,” Law notes. “By reducing the number of first-time buyers competing in the private market, it could also conceivably reduce prices. That would help many more young buyers than just those directly participating. Who could object to something so helpful?”
China is not the only country to try out a joint-ownership scheme, Law suggests. He points to the UK’s Help to Buy program, through which buyers can purchase between 25 per cent and 75 per cent of a home and owe rent on the rest. “If it works in the UK and China, why wouldn’t it work in Toronto?”
Photo Credit: Flickr user hans-johnson