Prop­erty tax on for­eign­ers cool­ing off Van­cou­ver mar­ket

China Daily (Canada) - - FRONT PAGE - By PAUL WELITZKIN in New York paulwelitzkin@chi­nadai­lyusa. com

The red hot real es­tate mar­ket in Van­cou­ver, Bri­tish Columbia, ap­pears to be soft­en­ing as a con­tro­ver­sial tax on for­eign pur­chases ap­proaches its one-month an­niver­sary.

On Aug 2 the gov­ern­ment of Bri­tish Columbia in­sti­tuted the 15 per­cent tax on for­eign prop­erty buy­ers in metropoli­tan Van­cou­ver as a surge in pur­chases by rich for­eign­ers — par­tic­u­larly the Chi­nese — helped to send hous­ing prices soar­ing in Van­cou­ver. The av­er­age sale price of a house more than dou­bled be­tween 2005 and 2015, to C$1.6 mil­lion ($1.22 mil­lion), ac­cord­ing to the Real Es­tate Board of Greater Van­cou­ver.

Sales were al­ready slow­ing be­fore the tax was an­nounced in late July, said Thomas David­off of the Sauder School of Busi­ness at the Uni­ver­sity Bri­tish Columbia. “Def­i­nitely sales were slow­ing down in June and July, es­pe­cially at the higher end,” he said in a tele­phone in­ter­view.

Ob­servers be­lieve it’s too early to say how much of any slow­down has been caused by the tax. “The in­tro­duc­tion of the tax was a con­tribut­ing fac­tor to this slow­down, but was only par­tially re­spon­si­ble,” Wayne Ryan, man­ag­ing bro­ker at Re/Max Crest Realty in Van­cou­ver, said.

A re­port from TD Bank said Van­cou­ver has started what is ex­pected to be a mod­est cor­rec­tion, which will be re­in­forced by the tax on non­res­i­dents.

“Home prices are pro­jected to de­cline by about 10 per cent in the re­gion by mid-2017, be­fore sta­bi­liz­ing later in the year,” TD Bank said, ac­cord­ing to Canada’s Fi­nan­cial Post. Even with a drop of that size, the bank noted that prices will still be well above where they were just one to two years ago.

Van­cou­ver has be­come a haven for wealthy Chi­nese buy­ers. Dur­ing a three-week pe­riod in June, 3 per­cent of the res­i­den­tial hous­ing sales were to for­eign in­vestors, the bulk of whom were from China, ac­cord­ing to data re­leased in July by Canada’s fi­nance min­istry.

“I be­lieve that we are al­ready see­ing some ef­fects from the tax, which was ap­plied retroac­tively to deals that were un­der ne­go­ti­a­tion, but not yet fi­nal­ized. The temporary ef­fect will likely slow the rate of for­eign pur­chases in the short term, and there is al­ready some anec­do­tal ev­i­dence that this is hap­pen­ing,” Gor­don Houlden, di­rec­tor of the China In­sti­tute at the Uni­ver­sity of Al­berta, said.

“I am not aware of any can­cel­la­tions due to the tax, but I have heard of a few sell­ers hav­ing to rene­go­ti­ate the pur­chase price down­wards to re­flect the in­creased costs of the buyer,” said Ryan.

Houlden doesn’t think the tax will de­ter all po­ten­tial Chi­nese buy­ers from Van­cou­ver. “Van­cou­ver real es­tate, while ex­pen­sive in the eyes of most Cana­di­ans, is cer­tainly not out of line with Bei­jing and Shang­hai real es­tate,” he said.

Van­cou­ver’s as­sets like the “views, clean air and life­style will con­tinue to ap­peal to many Chi­nese in­vestors, some of whom may also be look­ing to di­ver­sify their as­sets from 100 per­cent in the PRC for a va­ri­ety of rea­sons.”

Ryan be­lieves that the sup­ply of houses for sale will be crit­i­cal for the Van­cou­ver mar­ket.

“If the sup­ply stays low, there will be a min­i­mal neg­a­tive im­pact. On the other hand, if many sell­ers feel there will be a sig­nif­i­cant (neg­a­tive) im­pact on prices and put their prop­er­ties on the mar­ket, we would see a more neg­a­tive im­pact.

“Cer­tainly buy­ers will be us­ing the new tax as lever­age to buy at a lower price. I be­lieve any neg­a­tive im­pact will be short lived, and will not have much of an ef­fect by the end of the year,” he said.

I be­lieve that we are al­ready see­ing some ef­fects from the tax.”

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