Vancouver’s New Foreign Buyer Tax and Regulations
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In July 2016, BC's government unexpectedly mandated a 15% tax on any foreign national buying real estate in Metro Vancouver. This maneuver was to put a major speed bump on the steady flow of offshore money (mainly Chinese), streaming into the province, which bore the brunt of the blame for Vancouver's record high real estate last year.
The composite benchmark price, a representation of the typical residential property in Greater Vancouver, was $897,600 in December, representing a 17.8% jump from December 2015. For detached homes, the benchmark price was $1.48 million in December, representing a 5% decrease from six months earlier (June 2016), but an astounding 18.6% increase from December 2015.
In light of the red-hot market, the government introduced (and implemented within 10 days) an additional 15% property transfer tax on foreign nationals, corporations and trusts that purchased real estate in Metro Vancouver. For example, the new regulation would add $300,000 tax to the final purchase price of a home worth $2 million.
The province’s new tax measures, which also included a potential vacancy tax for the city of Vancouver, aimed to address the lack of rental supply and housing affordability, which was attributed, in large, to foreign investment.
Based on data that the B.C. government released last July, stats showed that foreign nationals had invested more than $1 billion into B.C. property between June 10th and July 14th alone, with more than 86% of that focused in the Lower Mainland.
Impact of the Tax
The tax seems to have achieved its desired effect- at least initially. The second half of 2016 clearly showed a cooling real estate sector, as both sales and prices experienced a decline. The Real Estate Board of Greater Vancouver said sales were down 39.4% December, compared with December 2015.
In and around Vancouver, foreign citizens were involved in 4.1% of all homes purchased last November, which was a 3% increase from October and more than four times the amount from August, which is the first month after the province launched the 15% tax levy.
“It’s still too early to draw any real conclusions from the data about the long-term effect of the additional property transfer tax,” a finance ministry statement said. “The purpose of the additional property transfer tax is to help manage demand in Metro Vancouver’s residential real estate market, to allow the housing market to respond by building new homes to meet local needs.”
Cash Cow For Vancouver?
According to data released by the BC Finance Ministry, in the first four months of the new levy, the province brought in more than $49 million in extra revenue from foreign buyers. About half of that — $24 million — was in November alone. There was another $152 million from property transfer taxes related to all home sales. The proceeds from the levy is said to be funding housing affordability measures in the region.
After the market nearly froze in August, foreign activity remained highest in the two Vancouver suburbs where, in six weeks prior to the tax levy, saw almost 25% comprised of international buyers.
In all, the government projects that about $2 billion in property transfer taxes will be paid in the 2016/17 fiscal year, up from $1.5 billion last year.
Vancouver shares the spotlight with other “super-prime cities", including Tokyo, Shanghai, Hong Kong, Singapore, London, Paris, Monaco, San Francisco, New York and Los Angeles. These cities attract high-net-worth people who want to establish a residence- where confidence is high that a real estate investment is safe and secure.
Along with the "brand" of each of these cities, there's a laundry list of other factors that make them so attractive, including their reputation for safety and lawfulness, world-class services, access to amenities, quality of life and the prospect of capital appreciation.
As Chinese currency, the renminbi, continues to fall, foreigners are looking for new places to protect and invest their wealth. With Vancouver having an established, vibrant Chinese and Asian community, there is a natural draw to investing in the city. Putting down roots with a home or real estate is a great means to become a part of the Vancouver culture.
In Vancouver, only 4.4% of buyers were foreign in November, compared to 15% in the month and a half before the tax. In Vancouver and Richmond, but not Burnaby, foreign buyers bought more expensive homes compared to locals, data shows.
Realtors, economists and industry insiders have speculated that international money could shift east to Kelowna and Toronto, but data won't easily be available to confirm the prediction, as Kelowna and Toronto do not have statistics that track foreign ownership.
The housing market is expected to play a prominent role in the upcoming provincial election campaign, which has been tentatively scheduled for May 9th, 2017.
Canadian economist Jim Brander states, “The economics of it are pretty straightforward: it’s supply and demand, and if you cut back the demand, you do hold down prices”. Brander expects the tax policy to persist into the long term, along with a slight decline in prices, although the ministry says it’s still too early to draw any real long-term conclusions from the data.