B.C. Premier Christy Clark says new data that show foreigners bought one in every 10 homes sold in Metro Vancouver's superheated market over five weeks forced her government to introduce a new and substantial tax on international buyers, but she says the surprise levy is intended to stop the spike in prices, not devalue the equity built up by existing homeowners.
Statistics the province released on Tuesday show buyers who were not Canadian citizens or permanent residents made up 10 per cent of all home sales in Metro Vancouver between June 10 and July 14. Those transactions totalled $885-million. An earlier release of data covering June 10 to 29 and not including end-of-month sales found only 5 per cent of the sales in the region involved foreigners.
The proportion of international buyers was higher in the suburbs of Burnaby and Richmond, with nearly one in five of all homes sold in those cities going to people from countries other than Canada. The rate for Vancouver proper was 11 per cent, and 7 per cent across all of British Columbia.
"There need to be more houses on the market that are available to local people," Ms. Clark told The Globe and Mail.
Next Tuesday, 22 communities will start levying 15 per cent in additional property transfer taxes on any foreign home buyer without permanent residency in Canada, as well as foreign corporations or Canadian-registered corporations owned or controlled by foreigners.
The province has said it will assess the effects in the coming weeks and can the reduce the tax to 10 per cent or raise it as high as 20 per cent if need be.
Ms. Clark, who faces an election next spring, said she hopes the tax will limit international demand to rein in "these silly price increases that we've seen" in Metro Vancouver, where prices for detached houses rose by more than 30 per cent in the past year, and multimillion-dollar houses are common.
"If this tax is 100-per-cent successful, there will be no money in it," Ms. Clark said. "It's certainly a lot better than what we had last week."
Fewer international buyers should cool bidding wars, but she said she does not think it will lead to a drop in home prices, which her government has argued would unfairly hurt the many locals who now have considerable equity in their homes.
Ms. Clark said her government will roll out another one or two major strategies to help affordability in the region in the coming weeks.
The announcement of the tax on Monday had regional mayors in British Columbia worried about ripple effects into Victoria and Squamish, among other places. Observers have also warned investors could take their money to Toronto, further fuelling that market. Ontario Finance Minister Charles Sousa said on Tuesday he is looking at the B.C. tax "very closely."
Ms. Clark's government has been under increasing pressure to curb foreign investment in housing.
The Bank of Canada recently issued warnings about unsustainable growth, while the federal government has struck a working group to issue recommendations on how to make Vancouver and Toronto's housing more affordable.
Critics have linked B.C.'s caution on the issue to the large donations the ruling Liberal Party reaps from the real estate industry and the sizable budget boost it receives through the transfer tax, which generated $1.53-billion for the province last fiscal year. Opinion polls have shown that most respondents wanted foreign investment in residential real estate stopped or slowed.
In response to that growing unease, the B.C. Liberal government has announced changes in the past several weeks, with a special sitting of the legislature under way this week. Along with the foreign-buyer tax, the province is clearing the way for the City of Vancouver to tax vacant houses – another aspect of the housing debate – and is ending self-regulation of the real estate industry.
B.C.'s Opposition New Democrats and some economists have also raised concerns about the new tax, urging the province to look at the source of money involved in real estate purchases rather than the passport of the buyer. On Tuesday, B.C.'s Finance Minister Mike de Jong said raising property taxes and requiring locals to apply for an exemption is too heavy-handed and could hurt seniors, many of whom own high-value properties but earn little.
The Chinese embassy in Ottawa issued a statement on Tuesday saying the Chinese government always "encourages its citizens to come to Canada to carry out economic, trade and investment activities, while asking them to abide by relevant local laws and regulation."
B.C.'s real estate industry called the tax unfair to those who have deals under way.
Jon Stovell, chair of Urban Development Institute, a non-profit that represents developers, estimated that up to 12 per cent of the 29,000 presale condo deals in the region involve buyers who will be affected.
"I can't get over the injustice of welcoming people into your economy and then whacking them with this tax," he said.
Macdonald Realty vice-president Jonathan Cooper said his firm is scrambling to help worried clients, including a Singapore-based family relocating to B.C. that has bought a house on Bowen Island for $765,000. The deal is firm and binding – the family has paid a deposit – but is not scheduled to close until after Aug. 2.
With the new tax, that buyer must pay about $115,000 more for the same house because the family does not yet have permanent residency.
"They're like most of us, they're not the kind of family that has $115,000 just lying around," said Mr. Cooper, whose firm has long courted international buyers and opened a Shanghai office in 2014.
The new tax will likely make it more difficult for companies in mining, technology, health care and other sectors to recruit employees to Vancouver, Mr. Cooper said.
"They're already finding it difficult, because of the [housing] costs, to bring talented people in – and now anybody who is coming here on a work visa, and thinking of settling, it's 'Oh, I'm sorry, now that you want to buy a house when you're here working for Lululemon, your costs just went up by 15 per cent,'" he said.
Cameron McNeill, president of MAC Marketing Solutions, a Vancouver-based real estate marketing firm, questioned whether the tax would do much to reduce prices, calling it a fallacy to conclude that foreign demand is the biggest driver of rising real estate values.
"We can't erase or unwind the fact that Vancouver is a spectacular city that has been discovered," he said.