A Tax­ing Propo­si­tion The Fall­out from B.C.’S For­eign Home­buy­ers’ Tax The

CAIFU - - 房地产行业 Theme Topic - Real Estate Industry - By Alan Forsythe

Cana­dian prov­ince of Bri­tish Columbia re­cently en­acted a for­eign home buy­ers tax of 15 per­cent on homes in the metro Van­cou­ver area in an ef­fort to cool the white hot hous­ing mar­ket there.

The tax has al­ready en­tered into le­gal wran­gling as the tax was rapidly introduced on Au­gust 2nd, leav­ing some home­buy­ers in the lurch. De­posits made on houses were sud­denly hit with a six-fig­ure price in­crease due to the tax, re­quir­ing some to back out of of­fers, but un­will­ing to forgo their de­posits.

Van­cou­ver area real­tors are ex­pect­ing a fif­teen to twenty per­cent drop in prices by Q2 2017.

Will it stop there though? The Cana­dian Hous­ing and Mort­gage Com­pany (CHMC) warned con­sumers ear­lier this year that Canada’s ma­jor cities are def­i­nitely ex­pe­ri­enc­ing a hous­ing bub­ble. If the bub­ble bursts Canada, cer­tainly Van­cou­ver, which has seen the high­est gains in prices in re­cent

Van­cou­ver area real­tors are ex­pect­ing a fif­teen to twenty per­cent drop in prices by Q2 2017.

Lo­cal res­i­dents leav­ing will not nec­es­sar­ily mean re­lief for lo­cal home­buy­ers, as wages will shrink if the econ­omy goes into re­ces­sion, even a low growth slug­gish econ­omy will put them at a dis­ad­van­tage.

years, could cre­ate a 2008/ 09 sit­u­a­tion where home­own­ers are lever­aged and hold­ing mort­gages on homes now less than what they paid for it.

Cana­dian bank­ing laws are more strin­gent than the U. S. and no money down 35 year mort­gages are un­heard of. So the floor is per­haps not too far down.

How­ever, one Van­cou­ver com­mer­cial real es­tate owner (who asked not to be iden­ti­fied) is wor­ried Van­cou­ver could be headed for a per­fect storm with a provin­cial elec­tion in the spring that may bring in a less busi­ness friendly gov­ern­ment.

“Just look next door at what the NDP (New Demo­cratic Party) have done to Al­berta. When they were in power through the 1990s we had a net out­flow of peo­ple from the prov­ince. In 1998 we put a sign on our prop­erty on West Broad­way (a 40,000 sq foot com­mer­cial space) we had one of­fer, so we took it off the mar­ket. In April 2010 we had two un­so­licited of­fers, one for three times what we paid and the other four times, both cash.”

He adds though that lo­cal res­i­dents leav­ing will not nec­es­sar­ily mean re­lief for lo­cal home­buy­ers, as wages will shrink if the econ­omy goes into re­ces­sion, even a low growth slug­gish econ­omy will put them at a dis­ad­van­tage.

“Wages aren’t keep­ing up, off­shore money will have much greater re­sources, and ac­cess to capital than lo­cal buy­ers; so the mar­ket doesn’t fun­da­men­tally change from where we are now.”

Lower prices in a de­pressed econ­omy might make up for the fif­teen per­cent home­buy­ers tax, but for­eign buy­ers might sim­ply look for bet­ter value else­where. The largest Cana­dian prov­ince, On­tario, whose ma­jor city Toronto has the sec­ond high­est real es­tate mar­ket, will not im­ple­ment a tax sim­i­lar to B.C.’S.

In the mean­time the pur­pose for in­tro­duc­ing the tax in the first place, to al­low for more af­ford­able hous­ing re­mains un­re­al­ized.

B.C.’S fi­nance min­is­ter Mike De Jong said when in­tro­duc­ing the tax last sum­mer that the rev­enue from the tax would be used to sup­port rental hous­ing, but specifics on how or when that hous­ing would be avail­able were not forth­com­ing.

B.C. Pre­mier Christy Clark added that the bill was introduced as a means to keep home­own­er­ship within reach of the mid­dle class.

Iron­i­cally, as noted above, the tax may be the spark to ig­nite the hous­ing melt­down and pos­si­ble re­ces­sion, nei­ther of which are much ben­e­fit to the mid­dle class.

“There are three types of home­own­ers, or would be home­own­ers in Van­cou­ver,” said our source. “One are the long-time lo­cals who bought homes decades ago and are now sit­ting on a prop­erty twenty times, per­haps even more, its orig­i­nal pur­chase price, I would in­clude in­her­ited prop­erty in that group as well. The sec­ond are the for­eign home­buy­ers who, as I said, are bring­ing in a great deal more capital than is avail­able to most lo­cal cit­i­zens and Van­cou­ver is a very at­trac­tive place for them to buy into. And lastly are the newer lo­cal cit­i­zens who are as­pi­ra­tional buy­ers, but at this point are look­ing at Van­cou­ver’s outer sub­urbs for any­thing re­motely af­ford­able. This tax will not change that equa­tion.”

He adds that for­eign home­buy­ers can and will find loop­holes around the tax that was largely

An empty home tax at 1 per­cent of as­sessed value will be brought in early 2017. The plan is to en­force the tax through ran­dom au­dits and fail­ure to de­clare a va­cant home as a non-prin­ci­pal prop­erty can re­sult in up to $10,000 a day fines.

The Whistler mar­ket has his­tor­i­cally been driven by U.S. buy­ers and to a lesser ex­tent Euro­pean (mainly U.K.) buy­ers.

im­ple­mented to catch hid­den buy­ers us­ing trusts, or off­shore cor­po­ra­tions to hide own­er­ship.

“There’s a way around it, they can use a do­mes­tic shell cor­po­ra­tion, or if they have a landed im­mi­grant rel­a­tive he can buy it and lease it back to them at a dol­lar a year, how­ever it’s done, be­lieve there are ways around it.”

Some an­a­lysts say the hous­ing mar­ket in Van­cou­ver has al­ready plateaued, although that is some­what de­bat­able: to­tal sales are down 39 per­cent, but prices are up 28 per­cent over last year (there is a def­i­nite lack of prod­uct on the mar­ket). Cer­tainly though in­di­vid­ual real es­tate agents have lost sales, but as noted the over­all mar­ket is still gain­ing (but slow­ing fast). Still, with record lev­els of home own­er­ship in the re­gion it begs the ques­tion, how many more peo­ple are out there look­ing to buy a home?

To add in­sult to in­jury an­other (some would say) puni­tive tax is be­ing introduced by the City of Van­cou­ver. An empty home tax at 1 per­cent of as­sessed value will be brought in early 2017. This will be a prop­erty sur charge on sec­ond homes that

B.C.’S Okana­gan re­gion, which has a Mediter­ranean like cli­mate, views of the 135 km Lake Okana­gan, give them a mar­ket op­tion just out­side of the Metro Van­cou­ver re­gion.

are kept empty most of the year. The idea, sim­i­lar to a tax levied on sec­ond home­own­ers in Paris, is to open up more homes for rental (as many as 11000 by one es­ti­mate). The plan is to en­force the tax through ran­dom au­dits and fail­ure to de­clare a va­cant home as a non-prin­ci­pal prop­erty can re­sult in up to $10,000 a day fines.

This tax does not af­fect the rest of Metro Van­cou­ver ( a col­lec­tion of over 20 sep­a­rate mu­nic­i­pal­i­ties). For ex­am­ple, the mu­nic­i­pal­ity of Burn­aby, which to many new­com­ers they would be hard pressed to de­ter­mine where Van­cou­ver ends and Burn­aby be­gins, is not af­fected by the va­cant home tax. Nor would Van­cou­ver’s Northshore, just across Bur­rard In­let, that area has long been a pop­u­lar lo­ca­tion for Asian buy­ers.

So buy­ers not wish­ing to rent out their homes could sim­ply look a lit­tle fur­ther afield to avoid that tax, in turn putting more up­wards pres­sure on prices in Van­cou­ver’s sub­urbs.

Or they could look even fur­ther afield and avoid both taxes.

Just 90 km north of Van­cou­ver is the Re­sort Mu­nic­i­pal­ity of Whistler, which is out­side of the re­gion af­fected by the home­buyer’s tax. The Whistler mar­ket has his­tor­i­cally been driven by U. S. buy­ers and to a lesser ex­tent Euro­pean ( mainly U. K.) buy­ers. But Asian buy­ers might start to see the re­sort as a more at­trac­tive op­tion now. Be­yond Whistler there is B.C.’S Okana­gan re­gion, a wine grow­ing re­gion, which has a Mediter­ranean like cli­mate, views of the 135 km Lake Okana­gan and an in­ter­na­tional air­port to boot, both op­tions could be very at­trac­tive to Asian buy­ers and give them a mar­ket op­tion just out­side of the Metro Van­cou­ver re­gion.

Or as noted above, they can avoid Bri­tish Columbia, Van­cou­ver’s loss is Toronto’s gain, with sales up 21 per­cent over last year in that city. Although some an­a­lysts chalked that up more to home­buy­ers rush­ing to get into the mar­ket be­fore a pos­si­ble in­ter­est hike, rather than for­eign buy­ers fo­cus­ing more of their in­ter­est on Canada’s largest city.

But Toronto does have its share of Asian buy­ers, and Canada re­mains a pop­u­lar des­ti­na­tion, so in­ter­est in that city should es­ca­late as they by­pass Van­cou­ver’s in­creas­ingly strin­gent tax regime.

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