Foreign buying has dropped dramatically in the Vancouver region’s real estate market three years after British Columbia introduced a tax that targets international purchases, a policy move that has helped drive down prices.
International buying of real estate decreased to 2.5 per cent of total residential sales in the Vancouver area in the March-to-May period of 2019, down from 13.2 per cent in the early summer of 2016, according to statistics compiled by the B.C. Finance Ministry. In real numbers, only 261 sales involved foreign purchasers over March, April and May this year, compared with 1,974 over the 2016 period.
In August, 2016, the previous BC Liberal government introduced a 15-per-cent tax on foreign buyers in the Vancouver area. The BC NDP government raised the foreign-buyers tax to 20 per cent in February, 2018, and also expanded the tax to other urban markets in the province.
The proportion of foreign buying in the region has gone from roughly one in every eight transactions before the tax, to one in every 60 this May.
“The market previously was not being kept afloat by local fundamentals but was rather being inflated due to outside sources of money from abroad,” Josh Gordon, an assistant professor at Simon Fraser University’s School of Public Policy, said in an interview.
There has been a trend of international buyers avoiding B.C. over the past three years, but the retreat has been uneven. For example, purchases by people who are not Canadian citizens or permanent residents accounted for less than 2 per cent of total residential sales in September, 2016, but rose to 4.2 per cent in December, 2017, and ascended to 5 per cent in February, 2018, before resuming a downward pattern.
Andy Yan, director of Simon Fraser University’s city program, said the latest statistics show the dramatic impact that public policy can have on the free market.
“It isn’t just about letting the mechanisms of the housing market play out,” Mr. Yan said in an interview on Monday. “The foreign-buyers tax is an example of demand-side policy that was needed. You can see this as an abatement of foreign buyers.”
Prices have fallen across the Vancouver region since mid-2018, but they have tended to drop the sharpest in municipalities where there were elevated levels of foreign buying in the spring of 2016, said Prof. Gordon.
Industry observers say other provincial factors influencing the housing market include a crackdown on money laundering, taxes aimed at higher-end properties, as well as what the NDP government calls a “speculation and vacancy tax,” which targets primarily out-of-province residents who don’t rent out their homes.
The foreign-buyers tax came in effect in response to concerns about the role of international influences during the housing boom from mid-2013 to mid-2016.
Between January, 2018, and May, 2019, the percentage of foreign buying out of total sales in Metro Vancouver had a monthly low of 1.57 per cent in July, 2018, and the second-lowest at 1.62 per cent in May, 2019. Of the 3,521 total residential transactions that closed in the Vancouver region in May this year, only 57 involved foreign purchasers,.
Prof. Gordon said that Burnaby, Richmond, the City of Vancouver and the District of West Vancouver are among the municipalities where the ratio of housing prices to local incomes remains high, despite a decline in prices of nearly 10 per cent regionally over the past year.
Within Vancouver proper, foreign purchasers accounted for 22 of the 800 transactions in May, or 2.75 per cent of the city’s total, according to data compiled by the B.C. Finance Ministry.
10,416 total residential transactions closed in the Vancouver region in March-to-May period this year, compared to a total of 14,978 in the months leading up to the new tax in 2016.
“We’re tackling the housing crisis and money laundering head-on to build a more sustainable economy that works for everyone,” B.C. Finance Minister Carole James wrote on Twitter last week. “I’ll continue to watch the housing trends closely but am cautiously optimistic that the housing market is returning to balance.”
The slowdown in housing sales in general has meant a reduction in taxes for government coffers. In May, revenue from the foreign-buyers tax tumbled to $6.5-million, down by half when compared with the $13-million collected in April.
Bryan Yu, deputy chief economist at Central 1 Credit Union, said total residential purchases by domestic and foreign buyers could pick up later this year, but he expects prices to continue slipping before stabilizing in 2020.
On Jan. 1, 2018, Canada’s banking regulator implemented a stress test, making it more difficult for buyers to qualify for mortgages.
“The sales downturn is largely policy driven, reflecting the federal mortgage stress tests and various provincial measures,” Mr. Yu said in a research note. “Current unrest in Hong Kong marks a upside risk for the market, and could trigger a return of Hong Kong-Canadians, but this is not a certainty.”
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