The madness that has come to define Greater Vancouver real estate incited a rancorous debate in the B.C. Legislature on Wednesday, with the government being put on the defensive over new revelations that have shed light on some of the more unsavoury practices taking place below the surface of a market spiralling out of control.
The first Question Period of the spring session amounted to a full-on interrogation of the government by the New Democratic Party Opposition over shadow flipping – a little-known practice in which a property is often flipped one or more times before it is finally handed over to a final buyer. It's an activity fuelling, in part at least, the insane escalation in house prices the region is witnessing and which has provoked global headlines.
Sometimes it occurs without the knowledge of the seller or original purchaser; it allows middlemen (and women) to make hundreds of thousands of dollars in some cases as the property is flipped for greater amounts of money while the government loses out on hundreds of thousands of its own in property-transfer taxes not being paid throughout the transaction process.
Most disconcerting of all, The Globe and Mail probe by investigative reporter Kathy Tomlinson that revealed the procedure in all its ugly light found it is entirely legal.
The matter that dominated Question Period, however, was what the government intended to do about it. The province confirmed Tuesday that the Real Estate Council of B.C. was going to conduct a review into shadow flipping, an inquiry that would be overseen by the province's superintendent of real estate. The NDP are suspicious of the real estate council's ability to investigate itself, especially when many believe it has long been aware of the practice.
Premier Christy Clark said earlier in the week, and repeated in the legislature on Wednesday, that if the council doesn't fix the problem, the government will – and quickly. We'll see.
The NDP's lead critic on the file, David Eby, has justifiable concerns that the real estate council is simply not up to the task of properly policing itself. As proof, he outlined for the legislature a case in which a Vancouver real estate agent aided and abetted a client in a fraud that the real estate association did not see fit to look into.
"If the Real Estate Council of B.C. is so incompetent that it doesn't investigate realtors even when they're handed sworn testimony about realtors' direct and personal involvement in fraud … why is the Premier the only person left in B.C. [who] has confidence in this council to do this investigation?" Mr. Eby implored.
The government really had no good answer.
Ms. Clark handed off Opposition questions to Finance Minister Mike de Jong, whose view of the situation was interesting. To him, assignments, the clauses in a real estate contract that allows for flipping to occur, can sometimes protect the interest of a vendor. An example might be when the buyer's financing falls through at the last minute; assignment would allow the real estate agent to complete the purchase with someone else.
"The issue is realtors who do not disclose when basic conflicts of interest exist," he told the legislature.
Conflicts such as when agents themselves are involved in the flipping.
But disclosure in itself will not solve this problem. It will simply mean that vendors will be told more often in writing when their property is being assigned; in other words, told when their property has been sold to someone other than the original purchaser and for more money – not a cent of which the original seller sees.
All disclosure does is inform vendors they are getting hosed – something they have little recourse to do anything about.
Contract-assignment law as it stands clears the way for shadow flipping to take place without the seller's permission and without the go-between having to pay the property transfer tax that would normally apply to most sales of more than $1-million. Focusing on disclosure, in other words, will have zero impact on the bigger picture.
The real estate council has until early April to report on its investigation. Obviously, it's too early to predict what recommendations might flow from it, but legislative changes that would outlaw shadow flipping would seem to be reasonable.
The fact is the provincial government realizes, as does the NDP, that the affordability crisis gripping Greater Vancouver has become an explosive issue. And the widespread anger that the Globe and Mail investigation touched off is testament to just how incendiary a subject it is.