B.C.'s tax on foreign home buyers in Metro Vancouver introduced more uncertainty into a market that was already cooling, with international transactions slowing to a trickle in August after hundreds of such buyers rushed to close almost a billion dollars in deals just before the new levy took effect.
The provincial government released new data on Thursday showing just 60 foreign buyers closed sales in and around Vancouver between Aug. 2 and Aug. 31, representing 0.9 per cent of all transactions in the region. In the seven weeks leading up to the tax, foreign buyers accounted for 13.2 per cent of sales in Metro Vancouver. But experts caution this decline is skewed: Many deals slated to complete in August were rushed and were among the more than $850-million worth of Metro Vancouver homes transferred to foreign buyers on July 29, the final business day before the tax was implemented.
Still, industry insiders are worried foreign buyers will stay away from Metro Vancouver and help create a big drop in a market where sales volumes have been falling steadily for several months and the average price of a detached house fell again last month. The province began tracking the nationalities and residency status of buyers in June. The data showed one in 10 homes in the Vancouver region went to foreign buyers, and the government announced an additional 15-per-cent property transfer tax on buyers who are not Canadian citizens or permanent residents.
In its first month, the tax brought in $2.5-million.
Premier Christy Clark said on Thursday she was happy the new levy had slowed foreign home purchases, even though the data cover only a short period. She cautioned that August may have been an unusual month. Ms. Clark has said the new tax would be a success if it created no revenue for the government and cooled off the steep rise in the prices of homes in Metro Vancouver.
"But I think it's fair to say we've had an impact and that's the impact we wanted to have," Ms. Clark told reporters at an event in her riding of Kelowna. "My hope is that many of those units that would have otherwise sold to foreign buyers will be open for British Columbians to buy." But Tom Davidoff, an economist and professor at University of B.C., said if foreign buyers all but disappear – as appears to have happened in August – a decline in prices of at least 25 per cent, and a resulting loss in equity for local owners, could soon hit the housing market in Metro Vancouver, where the benchmark price for a single-family home had risen more than 30 per cent in the past year.
"Politically, going after foreign people isn't really Profiles in Courage, but to have a major price correction just around election time? That could be tough politically," he said. "And a tough needle to thread because you have a market that's predicated on foreign buyers and expectations of more and more and more [price gains]."
Housing prices will be a central issue in B.C.'s election next May, and public pressure from locals priced out of the market forced Ms. Clark to act, but her government has long stated it is proud of the strong real estate sector.
The province will also haul in more tax revenue from the sale of homes this year than all revenues from the B.C.'s historical economic foundation of mining, energy, forestry, Crown land tenures and natural gas. A fiscal update released last week forecasts the property transfer tax will bring in $2.2-billion, a massive increase from the $1.2-billion predicted in the spring budget. Direct revenues from the province's top five resources are forecast to total $1.8-billion.
Vancouver realtor Steve Saretsky, a blogger who tracks daily sales records published by the local real estate board, said the average price for single-family homes dropped 17 per cent last month compared to the peak prices in January. Data for September show more detached houses are coming onto the market and fewer are selling –which gives buyers more room to bargain, he said.
"August is bad, September is going to be worse," he said.
Thursday's data also showed that overall sales of homes in and around Vancouver continue to slow, with 6,964 properties changing hands in August compared to 14,978 over the previous month and a half.
Across the rest of the province, where the tax does not apply, 189 international buyers closed deals on properties totalling $109-million last month, which represented 2.5 per cent of all homes sold in those communities. Foreign buyers on the southern tip of Vancouver Island were involved in a slightly higher share of overall money that changed hands in post-tax transactions. Prof. Davidoff said this hints that such buyers – who typically spend more than locals – are heading to the Victoria region to avoid the tax.
The levy applies to buyers who are not Canadian citizens or permanent residents, and corporations that are either not registered in Canada or are controlled by foreigners, and adds $300,000 to the purchase of a $2-million home. The tax was brought in after the provincial government found foreign citizens who were not permanent residents of Canada bought 10 per cent of Metro Vancouver homes sold from June 10 to July 14.
The foreign-buyer tax applies to the sale of all residential properties within 22 communities in Metro Vancouver. Foreign buyers must indicate their citizenship when they transfer a property's title.
The Premier said earlier this week that she is confident the tax can withstand a potential class-action lawsuit filed by a local Chinese woman who is unable to pay the levy on a townhouse she agreed to buy before the tax was announced.
On Thursday, the Finance Ministry said its auditors are still reviewing all transactions from August to validate whether buyers declaring themselves to be locals can prove their Canadian citizenship or permanent residency status.
Earlier this year, B.C.'s Liberal government rejected a bill tabled by the opposition New Democrats aimed at taxing foreign capital – not citizenship – tied up in housing. That bill called for increased property taxes for home owners who do not pay income tax in British Columbia.