The government in British Columbia has instituted a 15 percent tax on purchases of real estate by non-Canadian buyers – and the Real Estate Board of Greater Vancouver is not amused.
As board president Dan Morrison put it, “Government has had a long time to take action on the affordability issue, yet they decide to bring this new tax in over a long weekend, with no notice, and no time to prepare. It would have been prudent to seek consultation from the people most knowledgeable about the impact.”
Of course, there is enough money flying into Canadian real estate from overseas that a tax should fill the coffers of the province. Between June 10 and July 14, 2016, foreign investors put over $1 billion into property inside the province. The purpose of this tax is to temper the investment level – and that level is one reason why prices for BC real estate are going up so quickly. If you want an average single-detached home in greater Vancouver, the average selling price is $1.56 million. So the tax on this purchase, according to this tax, would be around $255,000. This tax will accompany a law that allows the City of Vancouver to tax properties that are vacant (another tactic aimed at foreign ownership).
The tax takes effect on August 2, and the swift timing means that the impact on the real estate market will be difficult to predict. Morrison has spoken out publicly in support of a grandfather clause for those transactions that have entered closing but might not become official until after that date. The idea is likely to spread, as well. Toronto detached home prices have risen about 20% per year, and their foreign investment market is sizable too. A similar tax could be considered to help temper that trend.
There are other entities that are irritated as well. According to the Urban Development Institute, putting a tax on real estate for foreign purchasers will not solve the problem of affordability in real estate. Instead, the Institute argues for an increase in housing supply to help bring prices down.
There are some on the other side of the issue, of course. There are some other countries in which taxes are imposed on foreign real estate investors. However, if the tax puts a stranglehold on the market, things could spiral back to where they were a few years ago in the wake of the collapse of the housing market.
The key behind the higher prices is not just foreign ownership, of course. It all has to do with available supply. With demand far outstripping supply right now, there is nowhere but prices to go but upward at the present time. This is a difficult truth for those looking to enter the housing market in areas that are affected. It will be interesting to see how this tax influences the workings of supply and demand in the system. One thing is for sure – foreign investors who want to buy real estate in BC had better hurry up and close so that they don’t get stuck with this huge new levy.
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