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B.C.’s decision to impose an extra tax on Vancouver-area home purchases by international buyers surprised many.

DARRYL DYCK/The Globe and Mail

B.C. Finance Minister Mike de Jong said he was keeping an open mind when asked last month about how he would act on research showing foreign buyers were tied to 5 per cent of homes recently sold in and around Vancouver.

For the first time, he had data "beyond conjecture ... beyond theories and speculation" showing the role of international buyers, but he cautioned that the 2 1/2-week sample period was too short to draw any conclusions.

He then repeated a message his government has delivered over the past year whenever it was questioned on Metro Vancouver's overheated housing market: The region must build its way out of its affordability crisis, and a foreign-buyer tax would only lower house values and unfairly hurt the equity of too many local owners.

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Foreign investors avoid taxes through Canadian real estate

But several politicians and their staff told The Globe and Mail that behind closed doors, Finance Ministry staff were feverishly crafting such a tax so it could be passed into law during last week's sitting of the legislative assembly.

The ministry also kept almost every minister in the dark on the details of the tax until the full cabinet met with Premier Christy Clark just before the levy was announced a week ago, the politicians said.

The first tranche of foreign-buyer statistics surprised the government by showing pockets of investment – such as double-digit percentages in Burnaby and Richmond – that were much higher than previous estimates of 3 to 5 per cent, which were provided by the realtors' provincial trade association and relied on by the government up until now.

B.C. real estate reform: What you need to know

As they studied similar foreign-buyer taxes in Hong Kong and Singapore, Mr. de Jong and the group of tight-lipped bureaucrats didn't consult any of the construction or real estate industry's leaders, several of whom publicly declared their anger over the government's announcement.

Economists, politicians and anyone with an interest in Canadian real estate were taken aback when Ms. Clark revealed that international buyers who are not permanent residents, or companies owned or controlled by foreign citizens, would pay an extra 15-per-cent property transfer tax on Vancouver-area home purchases.

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"What we were looking for was what worked – what number had an impact," Ms. Clark said in an interview last week. "We decided that 10 per cent might be too low."

The surprise move introduced a tremendous amount of uncertainty into Canada's hottest housing market, and even Mr. de Jong has said he has no idea how many foreigners will pay the new levy or will simply stare down an added $300,000 in new taxes on a $2-million house and decide to buy somewhere outside of Metro Vancouver.

Ms. Clark said such a tax has always been on the table, but it had to be sprung in such a manner to be effective. "If we had [talked about the tax earlier], we would have had a rush of foreign buyers into the market that would have distorted it further and very suddenly," she said.

The thousands of people caught up in pending transactions that may now be in limbo if one party backs out represent the collateral damage that inevitably occurs any time tax legislation is altered, said Rich Coleman, who has been the minister in charge of the housing file for more than a decade.

"Whenever you make a change, there's somebody that gets affected," Mr. Coleman said. "So you try to do it with the best balance possible."

"This is basically a very bold move to address what was a very significant public issue and concern with regards to real estate investment in British Columbia."

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Less than a year out from a provincial election in which real estate prices figure to be a central issue, Mr. Coleman said the Liberals did not conduct any public opinion polls on a potential foreign-buyer tax.

But social media and non-partisan surveys have repeatedly signalled that many in the province are concerned about the state of prices. Late last week, a new online poll showed that nine in 10 residents of Greater Vancouver supported the new levy. Perhaps more telling was that three-quarters of those who voted for the ruling Liberals in the 2013 election said the government should have intervened sooner.

"All the polling showed people were frantic and wanted a tax on foreign ownership," said condo marketer Bob Rennie, chief fundraiser for the Liberals. "It's all based on polling."

Mr. Rennie said he knew an additional property transfer tax for foreigners was coming about three weeks ago, but he figured it would be about 5 to 8 per cent. He said a more holistic approach would have created a tax targeting speculators of any nationality for flipping properties rapidly and "interfering in the market."

NDP housing critic David Eby said it is disingenuous of the government to claim it was taking the idea of foreign ownership in the market seriously and working behind the scenes on this tax all along. "It's absurd. All you have to do is look at Mike de Jong's transcripts in the legislature," said the Vancouver MLA, whose party's bill pushing a tax on foreign capital – not citizens – was rejected earlier this year. "There wasn't a problem, they had all the information they needed from their friends in the development industry," he said, paraphrasing Mr. de Jong's previous comments.

"In addition, [Mr. de Jong] said, 'If we do act, it won't be unless we have at least six months of data.'"

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The Premier says that, as far back as last year, she determined that international buyers were partly behind the spike in Metro Vancouver's housing prices but worried about creating a "half-baked" solution that "created a whole lot of other problems."

"I had suspected from the beginning that there were some things that were distorting the market and I strongly suspected that foreign buyers were part of that," she told The Globe. "Through 2015 and 2016, it's been pretty obvious that this has been a way overheated market, but the question for us, as a responsible government that cares about the economy and jobs, is 'what's the right remedy for that?'"

With a report from Frances Bula

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