Foreign buyer tax will not be changed, premier says
As many as 3,000 pre-sale deals could be in jeopardy, analysts warn
B.C.’s Liberal government has stood firm despite a barrage of criticism from developers and real estate agents over its foreign buyer tax, admitting Wednesday it expects some real estate deals involving foreigners to collapse.
British Columbians will get a chance to step in and buy the properties that foreign citizens choose not to purchase as a result of a new 15 per cent foreign buyer tax, said Finance Minister Mike de Jong.
De Jong and Premier Christy Clark offered no apologies Wednesday for the expected negative impact on foreign buyers, nor on Brit- ish Columbians who have deals to sell to foreigners that may dissolve. As many as 3,000 pre-sale deals (mainly condos) by non-Canadians could be suddenly hit by the new tax and be in jeopardy, according to the Urban Development Institute.
“We knew this was going to be dramatic, we knew that this was a point of departure and we knew that the transition in particular was going to attract attention and have short-term impacts,” said de Jong.
“For a family that has sold their home, sold it to foreign nationals and will have made some other decisions on the basis of that, there is the possibility of complications.
“But I should also be forthright about what is motivating this change and the introduction of this new tax: It is to discourage foreign investment in the residential real estate sector and free up housing for purchasing by British Columbians.”
The Liberal government has been under extraordinary pressure to intervene in the Lower Mainland’s housing market to slow skyrocketing prices that have made purchasing real estate out of reach for many locals.
Premier Clark flatly ruled out changing the tax Wednesday. Some developers and real estate insiders have warned there could be “chaos” in the market because the tax applies to deals and presales signed months or years ago that don’t close until after the tax comes into effect Aug. 2.
“I appreciate this is going to create more work for developers,” Clark told reporters. “But having said that, my job is to protect British Columbians to make sure we put British Columbians first. So we are not going to be exempting anyone, we are not exempting presales, we are not amending the legislation to change pre-sales.”
Clark said her government is on “good legal ground.” People have a week to close their deals before the tax applies, said Clark.
Urban Development Institute president Anne McMullin said the government should allow exemptions for in-progress real estate deals because to do otherwise creates uncertainty in the market, jeopardizes projects and makes banks nervous to provide financing.
“I don’t think it was well thought through,” she said. “It was a political decision, not an economic decision.”
Hani Lammam, executive vicepresident of Cressey Development Group, predicted the tax is going to affect the reputation of B.C. as a safe place to do business — something the finance minister has also admitted.
“The 15 per cent tax in itself is an extremely steep figure and it will definitely completely eliminate any foreign investment in the residential market,” he said.
Lammam said he understands the intent was to “do something” about the 10 per cent of Metro Vancouver residential market being bought by non-Canadians, but he disagrees with the method and lack of consultation.
That the tax is retroactive and doesn’t exempt contracts already drawn up is “unethical” and “even illegal,” he said.
Clark said discussing the tax before it was introduced “might have created a huge run on the property market.”
She expressed little sympathy for foreign buyers who purchased pre-sales years ago, saying they’ve probably already seen the value of their contract rise more than 15 per cent in one year.
But there are also impacts on local residents. Vancouver resident Pat Gardner had a deal with U.S. citizens to sell his downtown condo for $4 million, with a closing date at the end of September. But the buyers balked after learning the new foreign buyer tax will cost an extra $600,000.
“They said they are looking to back out of the deal,” he said. “The first comment was they wanted us to pay the tax and drop the price.”
Gardner said he had to lower his price to keep the deal alive.
Housing Minister Rich Coleman acknowledged the tax has received a rough reception.
“Industry, I think, was taken aback and have been a bit grumpy about it,” he said. “The reaction for most of the public I’ve heard otherwise, from calls to the office and emails from the general public, would be that it was the right thing.”
Coleman said he doesn’t anticipate any political impact on B.C. Liberal Party fundraising from developers angry at the tax who are also party donors.
NDP housing critic David Eby said the NDP will propose amendments to the housing legislation to require that the tax be paid by anyone who does not pay taxes on their worldwide income in British Columbia. Rather than being based on citizenship, this would capture any purchaser who does not file their taxes in B.C.
The reaction for most of the public ... would be that it was the right thing.