On Monday Premier Christy Clark took steps to cool off the sizzling real estate market in Metro Vancouver with an additional 15 per cent property transfer tax which will be applied to any purchasers of residential real estate who are foreign nationals or foreign-controlled corporations. It will go into effect August 2.
That’s awfully short notice for buyers and sellers mid-way through a transaction with a closing date in early August. If a buyer balks at having to pay an unexpected 15 per cent, will they walk away leaving the seller hung out to dry and unable to complete their own purchasing transaction? Buying and selling homes is entrenched in the domino factor.
Legislation introduced Monday is designed to hopefully make home ownership more affordable, set up a fund for market housing and rental initiatives, strengthen consumer protection, and allow Vancouver the means to increase rental property supply.
But is this too little too late and why only Vancouver? Victoria and Kelowna are both sizzling real estate hotbeds. And Toronto with its own red hot market is watching very closely. Over 10 per cent of new condos in the city are going to foreign buyers according to the Canada Mortgage and Housing Corporation and detached house prices are jumping 20 per cent annually.
And what about farmland that has been bought up by foreigners and left unoccupied as a long-term investment in land? Many are not interested or involved in farming, leaving the land fallow for years. Hay is left to grow as wild grassland, building up fuel that is a fire hazard and a danger to hardworking neighbouring B.C. residents.
Unlike Alberta, Saskatchewan, Manitoba and Quebec, British Columbia has no restriction on foreign ownership of farmland. Word is that real estate speculators and foreign buyers have been buying up farmland in Delta and the Lower Mainland pricing it way out of reach of residents.
“The data we started collecting earlier this summer is showing that foreign nationals invested more than $1 billion into B.C. property between June 10 and July 14, more than 86% of it in the Lower Mainland,” said Finance Minister Michael de Jong. “While investment from outside Canada is only one factor driving price increases, it represents an additional source of pressure on a market struggling to build enough new homes to keep up. This additional tax on foreign purchases will help manage foreign demand while new homes are built to meet local needs.”
The additional tax on the purchase of a home, say, valued at $2 million would amount to $300,000. From June 10 to July 14 Metro Vancouver accounted for $8.8 billion worth of transactions with foreign purchasers accounting for $885 million.
So what’s driving house prices?
According to a recent report Getting Serious about Affordable Housing by Marc Lee published by the Canadian Centre for Policy Alternatives, Metro Vancouver’s population has grown by over 420,000 people to 2.5 million since 2001, mainly from immigration. The current population growth of 1.4 per cent per year will continue for the foreseeable future. Low interest rates and the bank of mom and dad have helped young buyers take on mortgages. And, according to the report, the really rich are choosing to park their money in real estate in major cities globally.
Investment money is flowing from China to Canada with huge impacts on the Vancouver market. In 2014 there were 3.6 million millionaires in China, many of them looking for overseas opportunities. The drop in the value of the Canadian dollar and the soaring values of real estate made their search a no brainer.
Only time will tell if this new tax is really going to work.