B.C. tax on foreign buyers a bank boon
MAY PUSH INVESTMENT INTO OTHER CANADIAN MARKETS.
The British Columbia government’s move to slap a 15- per- cent tax on foreign homebuyers in Vancouver is positive for the country’s biggest mortgage lenders, Moody’s Investors Service said Wednesday.
“This land transfer tax is credit-positive for Canadian banks because it should slow the significant rise in Vancouver house prices over the past few years, helping stabilize banks’ mortgage collateral values in that city,” the ratings agency said in a report.
Three- quarters of outstanding residential mortgage debt in Canada is held by the largest seven banks, according to the report by analysts led by Moody’s assistant vice- president Jason Mercer.
House prices in Vancouver have been on a tear since 2005, climbing by nearly 250 per cent, faster than any other major Canadian city.
“This growth has accelerated in the past 12 to 18 months,” the report says, adding that the Canadian Real Estate Association says Vancouver experienced a 32- per- cent year- over- year increase in house prices in June alone.
There isn’t a great deal of available information to track foreign ownership in Canadian real estate, but preliminary data from B.C.’s ministry of f i nance and Moody’s own research “suggest it is not immaterial,” the ratings agency report said.
“Therefore, we believe this tax will likely slow down the steep house- price appreciation evidenced over the last decade in the Vancouver real estate market,” Moody’s said.
The additional land transfer tax, announced Monday and to go into effect Aug. 2, will be on top of existing property transfer taxes. It will apply to the full value of a residential real estate transaction where the purchaser is not a Canadian citizen or permanent resident.
Mercer said a foreign buyer will pay $ 168,000 in land transfer taxes on a $ 1- million home in Vancouver after Aug. 2, compared to the $ 18,000 cost for a Canadian citizen or permanent resident.
The report notes other jurisdictions including Hong Kong and Australia recently imposed similar taxes.
“We believe the absence of such a tax accelerated the pace of foreign investment in Vancouver and this levels the playing field with those jurisdictions,” the analysts wrote.
However, they cautioned that the new tax “may push investment into other Canadian markets, such as Toronto,” which would have the effect of “precipitating price increases” in those cities.