When the new foreign real estate tax was introduced in Greater Vancouver on August 2nd this year, it was hoped that the red-hot Vancouver real estate market would begin to cool. Three months on, the early indications show that the tax is having the desired effect, but, as is often the case, the Vancouver market is a more complicated beast. The tax may be slowing sales and impacting prices of some homes, but not all, so where does this leave the average Vancouverite and just how much is the new tax helping the market?
Why Implement a Foreign Real Estate Tax?
While it’s nothing new for foreigners to be purchasing property in Vancouver, it’s only over the past few years that these transactions have been more heavily scrutinized under the media spotlight. A large part of that debate sprung from the fact that many of these foreign buyers were purchasing properties for speculative purposes and leaving them vacant. With demand often outstripping supply this created problems – many homes sat vacant while the price of new listings kept surging. Put simply, this wasn’t fair for locals trying to find their way into the already inflated Vancouver real estate market, and the BC Liberals recognized that something had to be done.
The aim of the foreign real estate tax was to dissuade foreign buyers from purchasing homes thereby leaving more inventory available for local buyers, and, with reduced demand, it was intended that the market would become more affordable.
The foreign real estate tax adds a further 15% to the standard property transfer tax, and it includes the entire Greater Vancouver Regional District, not just the City of Vancouver. It applies to all foreign entities purchasing residential real estate, so that includes foreign nationals (people who are not Canadian citizens or permanent residents), foreign corporations or taxable trustees.
The tax was hurriedly implemented just a week and a half after the plan was unveiled by the British Columbia Ministry of Finance. It was applauded by some and criticized by others, primarily because it was implemented so quickly and because there was no grace period for purchases that had already been agreed but not completed before the implementation date.
However, the tax has also created contention among individuals who are living and working legally on temporary work visas within Canada and who do not have permanent resident status or citizenship. They will also be forced to pay the additional tax. This, along with the fact that hundreds of properties bought by speculators before the tax being implemented remain unoccupied, raises questions as to whether this tax is addressing the right issue.
What Impact Has the Foreign Real Estate Tax Had on the Vancouver Market?
Three months on, we already see an impact. News stories report that home sales in Vancouver have quickly cooled, but, despite the statistics released by the Real Estate Board of Greater Vancouver, Board president, Dan Morrison, is quick to point out that changing market conditions are also playing their part.
Regarding actual sales, there's been a huge drop of 38.8% in October this year compared with October 2015. Just 2,233 homes sold this October versus 3,646 last year. While the number of homes that are selling has significantly dropped, there has so far only been a slight shift in price. The composite benchmark price fell 0.8% in October compared with the month of September, but, to put this into perspective, this figure is still 24.8% higher than in October 2015. This highlights just how much Vancouver property prices have risen, even over the course of the past year.
It could also be argued that the market had naturally reached its peak, but while list prices had happily soared from month to month, it takes a lot longer for those prices to drop back down. How long it will take before the average Vancouverite sees a significant benefit remains to be seen, but, on the flipside, what happens to all those who bought a home at the height of the market? If prices do drop now, many homeowners will find themselves in negative equity situations.
And, the tax is not having an effect on the entire residential market. The biggest impact is at the highest end, for detached homes, where demand is dropping. In the mid-range, however, demand for townhomes and attached properties remains strong and homes are still selling for over asking price. So, it can be argued that the foreign real estate tax is not benefiting the average Vancouverite after all. Analyzing all the statistics one year from now is sure to be far more telling of the impact the tax has had, but for now, it's probably too early to say.
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David Maitre is one of the co-founders of Save With John and Dave, a Maple Ridge One Percent Realty agency. In 2007 & 2008, he earned President’s Club membership in the Real Estate Board of Greater Vancouver, and every year he's been a realtor he's been a member of the MLS Medallion Club and has also achieved the Master Medallion level
