DON CAYO (VANCOUVER SUN) - The best way to deal with B.C.’s socially and economically harmful Property Transfer Tax would be to scrap it.
However, the B.C. Chamber of Commerce is promoting a second-best solution that has a far better chance of winning support from provincial politicians hooked on spending our money.
The Chamber’s approach, adopted at a policy session during its annual meeting in Richmond on Friday, is to lower the tax for British Columbians who buy primary residences, and raise it for foreigners who buy second homes or investment properties. In Vancouver — which has the province’s and the nation’s least-affordable housing — this could help rein in runaway costs, and not just by reducing the bite the tax takes from money saved for downpayments. It also might, by costing non-residents more, moderate the impact of so many of them bidding up the price of higher-end houses and condos.
My preferred solution — scrapping the tax — is almost certain to be a non-starter because the tax is such a rich cash cow. It brings in about $750 million a year — nearly two per cent of the provincial government’s revenue. And it has the “merit” — viewed through a political lens — of irking only a limited number of citizens in any given year. So politicians won’t surrender it. Too much money is at stake, and they are loathe to provoke a whole new group of voters by replacing it with some other tax.
But B.C.’s tax on home buyers is the highest in Canada — $5,000 on a modest $350,000 home here, compared with $120 in Alberta, $1,050 in Saskatchewan, and $3,725 in high-priced Ontario.
Our tax has another huge failing. It hammers home buyers at the very time they can least afford it, when they are scraping together money to buy a home. It erodes the savings available for downpayments, thus forcing buyers to borrow more. This means higher mortgage payments for years.
The Chamber’s proposed solution deals nicely with both these issues: how to replace the revenue government will lose if it makes the tax less burdensome for citizens, and how to spare home owners a worrisomely high expense.
The resolution calls for the tax to remain as is — one per cent of the first $200,000 of value, and two per cent on the rest — for British Columbians purchasing anything other than a primary residence. For people buying homes to live in, the Chamber wants it lowered to one per cent across the board. For non-residents of Canada or corporations they control, the resolution wants the rate raised to two per cent on the full price.
Thus, to cite the example from a paper prepared for the policy discussion, today’s PTT assessment of $8,500 on a $525,000 home would drop to $5,250 for a British Columbian buying a primary residence, but would rise to $10,500 for a non-resident.
The paper notes many jurisdictions, several provinces among them, either put restrictions on what non-residents can buy or tax them up to 15 per cent extra.
B.C. doesn’t track foreigners’ involvement in the real estate market, so precise figures are hard to come by. But the paper cites a 2011 study of Vancouver’s housing market by Landcor Data Group that concluded: “In 2008 and 2010, between 46 and 74 per cent of buyers of condos over $2 million and homes over $3 million were sold to persons identified by Landcor as People’s Republic of China investors.”
As well, “While the Chinese buyer group is significantly present, other foreign buyers from 90 different countries are also entering the Vancouver market.”
KERRY GOLD (GLOBE & MAIL) - As the date for the Evergreen Line launch grows nearer, Coquitlam and Port Moody are increasingly becoming affordable and convenient home buying options for Vancouver buyers.
The new rapid transit line, which will link to the SkyTrain at Lougheed station, will take Port Moody and Coquitlam commuters to downtown Vancouver in less than an hour. It will also link the region with Simon Fraser University.
“Coquitlam condo product is selling less per square foot than it is in Surrey,” says Urban Analytics’ Michael Ferreira. “That’s one of the better places to buy right now.”
But while a lot of buyers hope to see their property investments increase once it’s launched in 2016, there’s debate as to whether a transit line actually translates into dollars. Condos around proposed stations in Coquitlam have mostly flat-lined over the past five years, according to Landcor Data Corp., which tracks the B.C. real estate market. Houses, on the other hand, have gone up. In 2009, the average sale price for a condo in Coquitlam around Burquitlam station, for example, was $211,970. In 2013, the average sale price was $255,815. In 2009, a single-family detached house in the area averaged $720,000 while this year it has averaged $963,000, according to Landcor.
Real estate analyst Richard Wozny, of Site Economics, says that, based on dozens of studies, there’s a hard and fast rule. For existing buildings, such as condo towers in the area, the price will go up about 5 per cent when a rapid transit station enters the picture. For a single-family home that needs to be rezoned, the price will double. For a vacant lot that’s already zoned for multiple families, the price increases about 25 per cent.
“There are tons of existing condo units and they will pour them on like crazy,” says Mr. Wozny. “Brentwood has 10,000 new condo units coming — that’s expressed intention to build. Surrey is going to get 16 stations and offer the same thing. Try to make money in that market as an end user. The supply is overwhelming you.”
Mr. Ferreira says with houses, it’s difficult to differentiate increases that are a result of the transit line and what’s happening in the market in general.
“It’s largely dependent on what the market conditions are around that time,” he says. “If they are strong, demand for housing is strong and prices are typically on the rise, which corrals people towards higher density neighbourhoods and rapid transit lines, that kind of thing.
“I think what you’ll see with the Evergreen Line is not much happening until it’s actually finished. It’s been delayed and talked about for so long that it will just take some time to for people to realize that it’s actually up and running.”
Mr. Ferreira agrees that condo owners could expect to see increases of around 5 per cent. Not that 5 per cent is a bad thing, adds Mr. Wozny. “That’s $25,000 on a $500,000 investment, and that’s a lot, in my opinion.”
Software developer Joe Parkinson lives in a two-level, 1,100-square-foot condo near Coquitlam Centre, overlooking an Evergreen station under construction. He purchased his condo three years ago, after he decided he wanted a better lifestyle than he had in downtown Vancouver. Now he pays $160 per month in condo fees instead of the $400 he was paying downtown. And he is living in a condo that would cost three times the amount in Vancouver. He paid about $450,000 for his Coquitlam condo.
“I was renting a shoebox in Vancouver,” he says. “It would be $2.5-million for this condo. And I can take the West Coast Express 30 minutes to work in Gastown.”
Mr. Parkinson wasn’t influenced by the Evergreen Line when he purchased his condo, and he’s not convinced it will go up in price when the line is finished.
“It didn’t influence my decision, but I think it’s influencing everybody else’s decision,” says Mr. Parkinson. “The detached housing in Coquitlam has done quite well, and it’s nowhere near the line. But for condos, it’s apples and oranges. It’s much different than in the city, where almost everything moves.”
Marketing director Jo Faloona purchased her two-level, 1,100-square-foot Port Moody townhouse for $245,000. Her home is just a five minute walk from the Inlet Centre station.
“Most people in my complex believe that their values are going to go up when SkyTrain comes. We are living in a spot where it’s perfect for young families.
“It’s a house and most of what is coming is condo living, and there are people who don’t want to go into a tower. There will be fewer and fewer walk-ups and that will be beneficial to us. I’m in the sweet spot – close enough to have the convenience of it, and just far enough away to not have anybody walking through my property to get to it.”
Bosa Properties is one of the early developers to build towers around the Coquitlam Evergreen Line. It has sold 70 per cent of one tower at itsUptown project, with construction set to start June 1. The 450 condo project, located a half block from the Evergreen station, includes a new Safeway store. Bosa has plans for two more towers for the area still in the approvals stage. Because the Evergreen Line will connect to Simon Fraser University on the east side, by a five-minute bus ride, he says he’s been getting a lot of interest from parents of university age children.
“We’ve been involved in that property for years, prior to the Evergreen being confirmed there,” says senior vice-president Daryl Simpson. “We would have been involved either way, line or not. But it’s unlikely we would be involved this soon, at this level, without the Evergreen Line happening.”
Once the line is up and running, Mr. Simpson says he can see the surrounding single-family homes rezoned for higher density. “Certainly the prospect of a single-family land assembly will increase as property values go up.”
As for crime, he says that the Evergreen won’t suffer from the poor public image that made it undesirable to live close to a SkyTrain station in the early days.
“In the last decade, that certainly was true, where you wanted to be two or three blocks away. That has changed. There have been a number of very popular, successful urban mixed-use projects that are literally right on top of the station or in the same block. And that market has placed a premium on those. It’s really inverted. Now, generally speaking, the closer you are the better.
“There is a critical mass of ridership that creates a certain comfort level and security and peace of mind at the station that wasn’t there before. I also think we’ve learned a lot since development of those old stations. The new ones are far more open, transparent, brighter, less confined. They just feel more welcoming and as a result don’t attract that same element that you’re talking about.”
That would apply to condos more than houses, however. Houses that are close to the line could potentially decrease in value, due to noise and traffic. But if you’re within walking distance, that’s a good thing.
“If you can walk from your home to the station, that determines the price of your house,” says Landcor’s Rudy Nielsen. “It’s based on walking not driving – about 15 minutes at most would be a comfortable distance.”
GARY MARR (FINANCIAL POST) - If you thought mortgage rates could not go any lower, you were wrong.
Investors Group is rocking the mortgage world with what appears to be the deepest discount in Canadian history on a floating rate loan, offering a deal that takes an effective mortgage rate down to 1.99%.
The company is now offering 101 basis points or 1.01 percentage points off its prime rate of 3% for a variable rate mortgage. Consumers can get the deal for a 36-month term which is shorter than the length offered by some of the major banks on the deep discounted five-year fixed rate mortgage which has dropped to around 3% — a controversial level that once drew the wrath of the department of finance.
“We haven’t seen a rate like this from a lender,” said Rob McLister, founder ofwww.ratespy.com., referring to the steep discount.
The offer from Investors Group is not available from brokers and is coming from the company’s own sources, designed to make a major splash in the marketplace.
“They could have priced this at prime minus 80 and beat everybody in Canada. Obviously, they want to get people’s attention here,” said Mr. McLister, who is also editor of Canadian Mortgage Trends.
Peter Veselinovich, vice-president of banking and mortgages with Investors, said his financial institution was able to set aside a block of funding to be able to offer the cut rate deal.
“This [deal] will be driven by what the appetite is in the marketplace. It’s a limited time offer, it may be there 90 or 120 days or it may be there for 30,” said Mr. Veselinovich, whose company quietly brought in the cut-rate product Monday to bring in new customers for its other offerings. “It’s kind of the best kept secret in the marketplace.”
There are some conditions to the mortgage, namely you cannot break it without selling your home. Nevertheless, the loan does allow consumers to double up monthly payments and pay a lump sum of 15% of the mortgage every year.
The latest salvo in the mortgage rate wars comes in the aftermath of former finance minister Jim Flaherty’s death which happened shortly after he stepped down as finance minister.
Mr. Flaherty had intervened in the market to discourage banks from lowering their mortgage rates below 3% on five-year fixed terms, out of fear it would inflate the housing market.
In March, after new Finance Minister Joe Oliver was sworn in, Bank of Montreal jumped back into the market again with its 2.99% offer for a five-year fixed mortgage. Mr. Oliver has shown no interest in intervening in the market.
“Our Government has taken action in the past to reduce consumer indebtedness and the Government’s exposure to the housing market,” said Mr. Oliver, in a emailed statement to the Financial Post.
“I will continue to monitor the market closely. We took action four times, from 2008 to 2012. Budgets 2013 and 2014 announced additional measures to reduce the government’s exposure to the housing market. We will continue monitoring the market.”
Steeply discounted variable rate mortgages tied to prime which generally moves with the Bank of Canada’s overnight rate could end up pushing Canadians back to floating rate products and leave them vulnerable should interest rates spike.
Ottawa has moved in the past to get consumers to lock in a rate by making it easier to qualify for a fixed-rate mortgage. Consumers are able to use the rate on their loan to qualify for lengths of five years or longer while for variable rates they must meet borrowing standards based on the qualifying rate for five years which stands at a relatively lofty 4.99%.
“A variable rate mortgage or an adjustable rate mortgage is the right rate for a lot of clients,” said Mr. Veselinovich, noting Investors Group is sub 3% on five-year fixed rate deals for people who want to go that route.
The Canadian Association of Accredited Mortgage Professionals in its mortgage survey last year found only 9% of consumers opted for a variable rate or adjustable rate mortgage in 2013. Overall, 26% of consumers have a variable rate product — a percentage that shows how popular that product had been in the past.
Another lingering threat from even lower rates could be ramped up consumer debt which has finally shown signs of finally coming under control.
Royal Bank of Canada said this month residential mortgage growth in March jumped 5.0% from a year ago. It was the fourth consecutive month the growth rate had held steady at 5%.
“We’ve seen debt accumulating in the mortgage market but it is slowing over time,” said Laura Cooper, an economist with the bank. “I’m not sure interest rates are having the same impact now. I think [sub 2% rates] do have the potential for some upside risks.”
Updates on Real Estate news happening in your city.