Chinese buyers sour on Vancouver tax
British Columbia is trying to cool down Vancouver’s sizzling real estate market by giving outsiders a strong incentive to keep shopping.
“We can understand the government protecting civic interests, but it should be done in fair and reasonable ways,” said a Chinese buyer who made a real estate deal in Vancouver in May that was set to close in September.
Now he suddenly has to pay the additional new 15 percent property transfer tax (PTT).
The new PTT issued by the provincial government of British Columbia on foreign buyers of homes in Vancouver took effect on Aug 2.
The tax adds an extra 15 percent payable to the provincial government on purchases made by foreign corporations and individuals of residential properties in Vancouver.
This is in addition to BC’s existing general property transfer tax of 1 percent on the first C$200,000 of a home’s value and 2 percent on the remaining value up to $2 million.
“We’re not sure if this kind of government decision-making body will impose more policies with no bottom line in the future,” said the buyer, who wished to remain anonymous, “and so we will stop, give it up”.
The BC government now requires individuals who are not citizens or permanent residents of Canada to file an additional PTT return at the time the transfer is registered. Those who do not pay and try to evade face fines of $100,000 for individuals, $200,000 for corporations and up to two years in prison.
There has long been speculation on the impact foreign investors have been having on the skyrocketing prices of Canada’s real estate, particularly in cities such as Toronto and Montreal, but Vancouver has been at the epicentre of the scrutiny. A new study found that 91 percent of detached homes in Vancouver are now over the $1 million mark.
Local residents claim that the region’s houses have become the most unaffordable in Canada because of foreign buyers driving up prices. The extra 15 percent tax is an attempt to slow that foreign speculation.
According to BC Premier Christy Clark, there is evidence suggesting that wealthy foreign buyers have raised prices.
Yet, according to the government’s own data, foreign home buyers account for less than 3 percent of the total transactions in the Vancouver region.
The Asia Real Estate Association of America (AREAA) says that of the 10,148 real estate transactions between June 10 and 29 in BC, half were in the Lower Mainland. Just 337 of those sales, or 3.3 percent of the total, involved foreign nationals, meaning 97 percent involved either Canadian citizens or permanent residents.
The bulk of the foreign buyers were from China — 258, or 2.5 of the total. The second-largest source of foreign investment was the US, which constituted 0.23 percent of sales to foreign nationals, according to AREAA.
“It was unjustified for people to blame buyers, especially Chinese buyers,” said Liu Fei, Chinese Consul General in Vancouver. “The skyrocketing house prices and affordability crisis are due to a lack of regulation in the booming real estate market.”
Commenting on the new BC tax, Yang Yundong, counsellor and spokesman at the Chinese embassy in Ottawa, said, “The Chinese government always encourages Chinese investors in Canada to abide by relevant local laws and regulations.”
Some industry insiders are less than pleased. “A new real estate tax, with just eight days’ notice and no consultation with the professionals who serve home-buyers and sellers every day needlessly injects uncertainty into the market,” said Dan Morrison, president of the Real Estate Board of Greater Vancouver, who called on the government to exempt transactions that were already in the process of closing.
It was unjustified for people to blame buyers, especially Chinese buyers.”
No exemptions were made as the tax went into effect over the long BC Day weekend. “While it’s the government’s prerogative to implement taxes, people deserve to be treated fairly,” Morrison said. “They have a right to understand the cost they’re expected to pay when they enter into a legal agreement.”
Alex Liu, a realtor with Sutton Group-Seafair Realty in Vancouver, said, “It is important to note that although the numbers of sales have decreased, the value of these homes has not. The activity level is slowing, but not prices.”
“The market will slow down for now, but it’s just short term,” he said. “Supply and demand remain the same and prices and the market will pick up in the future, for sure.”
Liu pointed out that some buyers who are not offshore investors are hit by the PTT. “Lots of these foreign buyers have some connection to Vancouver,” he said. “For example, international students and new graduates who live in Canada on work visas; they live here in Vancouver and pay taxes and yet they still have to pay this 15 percent.”
Some potential Chinese buyers told China Daily that especially now with the new PTT, they are waiting more than ever for the housing market to cool down before making a move.
“This is a serious blow to our confidence in Canada’s investment tourism and we feel that the government has lost some of its integrity,” said Michael Ma, a Chinese father who had planned to buy a condominium for his son in Vancouver. “We will of course consider other areas — not in Canada, I mean another country.”
“I don’t think Chinese buyers are entirely responsible for Vancouver’s house price increases, although interest from overseas buyers logically pushes up local prices,” said Judy Lee, a Torontobased realtor with ReMax.
“If foreigners start to worry about taxes hurting their return on investment in Canada, they will be more likely to spend in other countries,” said Jeremy Kronick, senior policy analyst at the C.D. Howe Institute.
“The new policy will have a strong impact on houses over $4 million, which are always favoured by offshore buyers,” said Yongci Lyu, a realtor in Vancouver.
Some experts warn that foreign buyers might try to hide their identities by getting local residents to buy properties on their behalf.
“Since the new tax policy has just come into effect, the best way to measure its impact is to look at both the number of sales and value of each sale through September and October,” said Benjamin Peng, a Sutton realtor who has extensive experience with overseas clients.
Observers wonder if Ontario will follow BC’s lead and implement a new real estate tax.
“If the buyers do not want to pay that 15 percent, they’re going to now dump it into the Toronto real estate market, which is already hot,” said Derek Ladouceur, a Toronto real estate agent.
Ontario finance minister Charles Sousa said he will be looking very closely at BC’s tax aimed at foreign home buyers as he looks for ways to address eroding affordability in Toronto’s housing market.
“I welcome what BC is putting forward,” he said. “But, we’ve got to be cognizant of the impacts of those decisions.”
Sousa said that any policies introduced to cool down Toronto’s hot real estate sector could affect other parts of the province that aren’t seeing the same problem.
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