METRO VANCOUVER (NEWS 1130) – The province will start singling out foreign buyers with a new 15 per cent property transfer tax as a way to cool demand for Metro Vancouver real estate.
The BC Liberals introduced legislation to make several changes during a special summer session in Victoria this week. Foreign nationals and foreign-controlled companies will be hit with the levy.
The BC government says 15 per cent tax will amount to about $300,000 in tax on the sale of a $2-million home.
The size and footprint of the tax can be adjusted once we see how the tax affects the market.
The tax can be increased and decreased between 10 and 20 per cent. Regional districts outside of Metro Vancouver can be included if the tax pushes foreign buyers to other areas.
Finance Minister Mike de Jong says the specific motivation behind the tax is to decrease demand, but there’s going to be a bonus for people struggling to buy something affordable or find a place to rent. He says the cash collected under this tax will go into something they’re calling the Housing Priority Initiatives Fund for provincial housing and rental programs.
“Some of you will be thinking how much? We can’t say with certainty the proceeds of the additional property transfer tax are but we are resolved to keep the public informed and continue to release data.”
- Will a property tax on foreign buyers work?
- Foreign buyer tax not enough to send housing market into tailspin: economist
- Lawyers, notaries need to follow rules for new property transfer tax to work: public policy prof
The property transfer tax for foreign buyers represents a departure from the BC Liberals’ position in the past.
The finance minister said just two months ago he has a “significant bias” against a punitive tax singling out foreign buyers. Premier Christy Clark shot down the idea when it was proposed by the creator of a petition on the subject last year.
Clark says they’re taking action based on data collected over the last few weeks.
“I have always said every suggestion that we’ve received is on the table. I’ve said that consistently and those have been suggestions from critics, from municipal governments, from academics and our job has been to take those suggestions and turn them into legislation.”
Clark adds the data they’ve been collecting over a less-than-two-month period has contributed to the change of heart.
The province changed the rules in May, requiring foreign buyers to declare their citizenship on the property transfer tax form.
Data gleaned from the forms between June 10th and July 14th shows foreign buyers spent about $1-billion residential real estate in BC and 86 per cent of that was spent in the Lower Mainland.
The tax kicks in next Tuesday.
The BC government’s legislation also includes changing the Vancouver charter to allow the municipality to tax vacant homes and changes recommended by an independent advisory group on real estate in Metro Vancouver.
Expert says tax should slow purchases from foreign buyers, but other steps are needed
Housing economist Tom Davidoff with the Sauder School of Business finds this an interesting step, and expects it will stop a lot of foreign buyers from purchasing homes in the region.
“The interesting question is are we going to see those purchases bleed over into other types of purchases? Are people going to find local, permanent residents or local corporations to buy on their behalf?”
He says he’s reluctant to speculate whether this change will push home prices down. “This is not precisely what we had asked for because we do believe money can come in other than through a foreign purchaser.”
“I think what’s critical is the City of Vancouver and hopefully other municipalities now fixing their definition of a so-called ‘vacancy tax,’ so that anything that isn’t a primary residence or a lease arrangement becomes subject to that extra tax, as well. I think it you combined a proper tax on people who aren’t home owners or landlords with this tax on foreign buyers, you might see considerable softening of prices around Vancouver,” adds Davidoff.
Given this property transfer tax will only apply to homes in Metro Vancouver, he tells us this could have a big impact on other areas of BC.
“If foreign buyers want to get their money into British Columbia and aren’t able to go to other entities like friends and families to buy the properties, then you look for what’s the next-best substitute. Victoria has been hot and may get a bunch hotter, as it’s now 15 per cent cheaper for a foreign buyer, relative to Vancouver.”
Davidoff says he’d be very surprised if foreign buyers buy luxury properties after the transfer tax comes in.
“Imagine buying a $5-million, paying a $750,000 transfer tax. People don’t get rich by paying $750,000 to buy a home on top of the purchase price. The question is whether foreign buyers will find a way to get money into the local housing market, other than being a foreign buyer.”
AUDIO: Housing economist Tom Davidoff speaks to NEWS 1130 about the incoming property transfer tax: