Property tax on foreigners cooling off Vancouver market
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.”