A new tax on real estate purchased by foreign buyers has set off shock waves through the B.C. real estate sector, sending clients and realtors scrambling to close deals before the new tax kicks in and raising concerns it could scupper millions of dollars' worth of deals and hurt the provincial economy.
In a letter on Wednesday to Premier Christy Clark, Cressey Development Group president Scott Cressey warned that it expects to see buyers – half local, half foreign – rescind on $20-million worth of sales contracts by Friday.
"The resident buyers who are rescinding are concerned that this new taxation might destroy the confidence in the real estate market," Mr. Cressey said in the letter, a copy of which was obtained by The Globe and Mail.
And he warned that banks will likely want to do audits of all projects under construction in the Lower Mainland to determine whether financing – which depends in part on presales of units – can continue.
In a separate letter to Ms. Clark, also obtained by The Globe, a construction company spokesman warned that the new tax could cast a pall over the construction sector – one of the province's biggest employers.
"The imposition of this foreign buyers tax is a real threat to the state of development in the Greater Vancouver Area and thus a threat to employment within the construction industry," said Doug MacFarlane, president of ITC Construction Group.
Mr. MacFarlane noted in his letter that ITC employs more than 2,500 people and currently has 20 projects under construction.
He also reminded the Premier of his company's support, saying, "ITC has been a big supporter of you and the B.C. Liberals" through subsidiary companies.
Ms. Clark announced on Monday that buyers of Metro Vancouver real estate who are foreign nationals or foreign-controlled corporations would have to pay an additional 15 per cent property transfer tax beginning Aug. 2. The surprise move followed months of concern about skyrocketing real estate prices in Vancouver and elsewhere in the Lower Mainland.
For condo developers, the tax is a concern because it might dampen presales and therefore financing, as banks require some projects to have as many as 70 per cent of their units sold before the banks will provide financing.
The new tax "sends a signal to buyers that they're subject to a lot of capricious new regulation," said Jon Stovell, chair of the Urban Development Institute. "It sends a lot of negative messages in this whole climate of blaming the buyers," he added.
Condo marketer Bob Rennie said foreign buyers will likely absorb the new tax after an adjustment period. But he is still not happy about the new tax, saying it doesn't target speculative activity.
A 15-per-cent tax may do little or nothing to discourage people who are intent on moving capital from one country to another, said B.C. real estate lawyer William McCarthy.
"Anybody who is moving assets or moving capital around the world for any reason than perhaps wanting to live in an area, they are the masters at this," said Mr. McCarthy, the past-president of the Real Estate Institute of Canada.
People might try to avoid the tax by going through a relative or other means, he added.
Notaries have been peppered with calls from realtors and clients wanting to know if deals slated to close next month or later can be pushed through before Aug. 2, said Tammy Morin Nakashima, president of the Societies of Notaries Public of BC.
And buyers and sellers can expect higher costs for a quick turnaround.
"To accommodate those kinds of requests, it doesn't give us the ordinary lead time and processing time, so that means people are going to be doing double and triple time to bump a file forward in that short a time," Ms. Morin Nakashima said on Wednesday.
Notaries will "for sure" charge additional fees to provide that service, she added.
In an e-mail, Liza Aboud, vice-president of the Land Title and Survey Authority of British Columbia, said more than 95 per cent of applications to the land title office are filed electronically and that a potential increase in volume resulting from the new tax "should not have any effect."