Foreign investors may set sights on Toronto

A new crackdown on overseas investors in British Columbia’s residential real estate could easily end up driving that money to other parts of the country, according to reports out Tuesday.

Citing concerns over affordability, B.C. slapped an additional 15 per cent property tax transfer fee on all foreign investors, and entities representing them, for purchases in Metro Vancouver effective Aug. 2.

“With any tax change, there may be some unintended consequences. For one, the move may shift foreign attention to other markets in B.C., such as Victoria, or elsewhere in Canada,” said Michael Dolega, a senior economist with Toronto-Dominion Bank, in a note released Tuesday.

“It is being implemented at a time when Vancouver’s resale housing market has already been showing significant signs of cooling. Existing home sales fell by 14 per cent in the three months since March and the average home price has dipped two per cent. In addition, new housing construction has responded to the pickup in demand, and hit a record high in the first half of 2016. This additional supply was already poised to return the market closer to balanced territory,” said the economist.

Using some initial data from 19 days in June, the B.C. government has determined that five per cent of investors in Metro Vancouver are foreign. Using an assumption the foreign share is in the range of five to 14 per cent, Dolega predicts the new rules will reduce sales by 15 to 20 per cent over the next three quarters.

Meanwhile in Ontario, where prices are rising by about 16 per cent annually in its largest city, Finance Minister Charles Sousa said he will look “very closely” at the new tax from his provincial counterparts.

Doug Porter, the chief economist with Bank of Montreal, has suggested Ontario look at a similar tax, especially given its fiscal position and the revenue the tax would generate.

“It comes down to who the potential buyers are,” said Porter, referring to whether those buyers will shift their purchases to Toronto from Vancouver.

Finn Poschmman, chief executive of the Atlantic Provinces Economic Council, said he expects there will continue to be a regional focus for investors, but says the tax is a loss for Vancouver and Canada.

“For people who are looking for a West Coast real estate investment, or a place to live or build a business in future, more money will flow to Seattle, Portland, San Francisco — or tiny Vancouver, Wash.,” he said.

“What is unfortunate is that Vancouver, B.C., will lose some of those people.”

Vancouver realtors reacted with fury to the announcement, especially the short notice, and demanded transactions that are in the process of closing being exempt from the new tax.