METRO VANCOUVER (NEWS 1130) – The province will start singling out foreign buyers with a new 15 per cent property transfer tax as a way to cool demand for Metro Vancouver real estate.
The BC Liberals introduced legislation to make several changes during a special summer session in Victoria this week.
Foreign nationals and foreign-controlled companies will be hit with the levy.
The BC government says 15 per cent tax will amount to about $300,000 in tax on the sale of a $2-million home.
The size and footprint of the tax can be adjusted once we see how the tax affects the market.
The tax can be increased and decreased between 10 and 20 per cent. Regional districts outside of Metro Vancouver can be included if the tax pushes foreign buyers to other areas.
Finance Minister Mike de Jong says the specific motivation behind the tax is to decrease demand, but there’s going to be a bonus for people struggling to buy something affordable or find a place to rent. He says the cash collected under this tax will go into something they’re calling the Housing Priority Initiatives Fund for provincial housing and rental programs.
“Some of you will be thinking how much? We can’t say with certainty the proceeds of the additional property transfer tax are but we are resolved to keep the public informed and continue to release data.”
The property transfer tax for foreign buyers represents a departure from the BC Liberals’ position in the past.
The finance minister said just two months ago he has a “significant bias” against a punitive tax singling out foreign buyers. Premier Christy Clark shot down the idea when it was proposed by the creator of a petition on the subject last year.
Clark says they’re taking action based on data collected over the last few weeks.
“I have always said every suggestion that we’ve received is on the table. I’ve said that consistently and those have been suggestions from critics, from municipal governments, from academics and our job has been to take those suggestions and turn them into legislation.”
Clark adds the data they’ve been collecting over a less-than-two-month period has contributed to the change of heart.
The province changed the rules in May, requiring foreign buyers to declare their citizenship on the property transfer tax form.
Data gleaned from the forms between June 10th and July 14th shows foreign buyers spent about $1-billion residential real estate in BC and 86 per cent of that was spent in the Lower Mainland. The tax kicks in next Tuesday.
The BC government’s legislation also includes changing the Vancouver charter to allow the municipality to tax vacant homes and changes recommended by an independent advisory group on real estate in Metro Vancouver.
MIKE HAGER (GLOBAL NEWS) - New data show foreign buyers purchased 5 per cent of the homes sold in and around Vancouver over three weeks last month and, on average, spent about $400,000 more than Canadians in these transactions, the first statistical hint of the impact offshore money might be having on the region’s overheated market.
Economists say the 5-per-cent figure is high enough to be a factor in the surging cost of Metro Vancouver’s housing stock, but B.C. Finance Minister Mike de Jong wouldn’t comment on how the two might be linked.
Across British Columbia, foreign buyers purchased about 3 per cent of homes between June 10 and June 29, a rate similar to the 4-per-cent tracked in New York State, according to figures released last month by the National Association of Realtors in the United States. Mr. de Jong’s office said the province had no comparative data from other parts of Canada, but official statistics released earlier this year found foreigners owned 3.3 per cent of of all condos in Greater Toronto, slightly down from 3.5 per cent in Metro Vancouver.
Facing an election next spring where housing affordability figures to be a major issue, Mr. de Jong said this is the first time concrete data have shown the extent of foreign investment in the sector.
“It is actual, it is factual and it is beyond conjecture, it is beyond theories and speculation,” Mr. de Jong said. “So I attach importance to the data and we’re going to approach it with an open mind.”
After an endless public debate over a lack of hard evidence, the provincial government announced a plan earlier this year to track foreign ownership amid growing concerns that speculators from outside Canada are superheating Vancouver’s housing market. The new rules require citizenship information to be recorded when a home is registered, and the provincial property transfer tax paid, following a sale. Buyers must indicate whether they are Canadian citizens or permanent residents – or, if not, the country in which they hold citizenship.
Mr. de Jong said those foreign purchasers bought homes that on average cost $1.16-million, which is about $422,000 higher than the average home bought by Canadian citizens or permanent residents during that time.
He noted that of the more than 5,000 Metro Vancouver transactions tracked by his government last month, 260 involved foreign citizens who weren’t permanent residents. Of those, 234 were from China.
Mr. de Jong said his staff will be “zeroing in to examine and analyze” why foreign buyers spent more money on housing during the time period covered by the data, but he cautioned that the sample period was too short to draw any conclusions about any wider role played by foreign buyers.
Benjamin Reitzes, senior economist at BMO, said low interest rates are in part driving the soaring home prices, but foreign buyers represent a segment big enough to further “juice” up prices.
“Even at the high end, when you push one house out of the market, a domestic buyer who maybe would have otherwise bought it has to buy a different house [after getting outbid],” Mr. Reitzes said.
Still, it is difficult to measure this effect when no historical data exist, he added. “Maybe [foreign investment] has been consistently 5 per cent, we don’t really know that,” he said.
Economist Tom Davidoff, a professor at the University of British Columbia, said if those non-Canadian buyers were stopped from purchasing during those three weeks, prices in Metro Vancouver would have fallen more than 14 per cent, according to standard modelling. Prices would likely fall even more, he added, because local buyers would feel less “spooked” to get into the market before they become priced out.
Provincewide, there were about 10,000 transactions during those same three weeks, of which 337 – about 3 per cent – involved foreign nationals.
The government only began its tracking on June 10 and its data do not cover sales on June 30, an important day when many deals close at the end of the month, Mr. de Jong said. He said he released the figures now, rather than waiting the six months he had promised, because of pent-up public demand for information.
“The longer the reporting period, the more reliance we can have on the data, but my sense was people weren’t going to be very happy with an answer that said, ‘Yes we’re compiling the data ... but you won’t be able to see it for six months.’”
Mr. de Jong said while the provincial government understands the frustration of the growing number of families priced out of owning their own home, the soaring prices are a sign of B.C.’s economic health. “It’s a challenge that virtually every other jurisdiction would like to have, because it is a challenge that is associated with a growing economy,” he said.
NDP Leader John Horgan called that claim absurd and noted that the government likely captured less than half of all foreign buyers because the data were self-reported and didn’t take into account numbered companies that purchased property.
The percentage of foreign buyers in the market is likely 10 to 15 per cent, NDP housing critic David Eby argued, based on income data from the 2011 census and a recent City of Vancouver study on empty homes.
Year-over-year growth in the price of Greater Vancouver’s detached houses hit 38.7 per cent last month, up from 24.3 per cent in December. In Toronto, prices for single and semi-detached houses increased about 20 per cent in June from a year earlier.
Last month, the Bank of Canada warned that foreign ownership iscontributing to both Vancouver and Toronto’s untenable spike in housing prices. The central bank statement said this upward trend can’t be expected to continue and that typical factors that drive housing markets – such as job growth and immigration – don’t explain the current frenzy in these two cities.
At the time, Mr. de Jong called this assessment balanced, noting that it estimated the risk of a downturn in the near term remains low.
B.C.’s release of data comes months before the results of Ottawa’s “deep dive” into the factors driving the country’s housing markets are expected to be announced.
Updates on Real Estate news happening in your city.