For the first time in almost two decades, British Columbia will require real estate purchasers to disclose citizenship details starting next month, as Metro Vancouver’s red-hot housing market fuels concerns about foreign investment.
The new requirements, aimed at answering whether foreign ownership is driving up housing prices, go beyond the data that are supposed to be collected for Canada’s anti-money-laundering agency whenever someone is involved in a real estate transaction. Records show there is significant non-compliance among Vancouver-area real estate firms, which are required to collect the information for the Financial Transactions and Reports Analysis Centre (FinTRAC).
B.C. Finance Minister Mike de Jong said he is confident provincial auditors will be more successful. “The objective here is to get beyond the theory, get beyond the conjecture and the speculation and actually have hard data,” he told reporters on Tuesday.
At the same time, he unveiled new rules to limit “shadow flipping,” a practice Premier Christy Clark called “greedy” after a Globe and Mail investigation exposed it in March.
In the typical shadow flip, a real estate buyer assigns – sells – a sales contract to another buyer or buyers in the period before the deal with the original seller closes. At completion, the end buyer pays more for the property than the initial seller receives. The profit is shared between the middlemen who arranged the deal, sometimes including real estate agents.
The classified advertisements website Craigslist currently lists dozens of properties in the Lower Mainland for sale through contract assignment.
The new regulation – which applies only to licensed realtors – will not ban contract assignment but seeks to ensure that the seller consents to such an arrangement and is the one who profits if the property is resold before the deal is closed.
“The idea here is to better protect sellers in the real estate market and hopefully address in part some of the concerns we have heard about the conduct on the part of some realtors,” Mr. de Jong said. Asked what protection is available for sellers if a non-licensed agent is involved in the transaction, he said people should protect their assets by making sure they have licensed professionals advising them.
“When you are dealing with what is probably your most valuable asset – for most people, your home is your most valuable asset – I think it is foolish in the extreme to embark upon a sale transaction without the benefit of advice.”
NDP Leader John Horgan said the initiatives announced Tuesday will do little to improve housing affordability. “The real root of the issue is speculation. … It’s about people using Vancouver as a safety deposit box,” he said.
“The Premier talked some months ago about the naked greed in this sector, and today she delivered a very, very modest fig leaf.”
One Vancouver realtor expressed concern that the province has not entirely closed the loopholes that allowed shadow flipping to occur.
“Until we change the types of people we have representing buyers and sellers, and the level of training required to become a realtor, we will not see a significant change in consumer protection,” said Re/Max realtor Keith Roy. “It means the public is more aware of the issue, but unfortunately there are no greater protections than they had before.”
The new disclosure rules will also create new data on the use of bare trusts, after an investigative report in The Globe showed how such trusts may be used to transfer property ownership without paying the property transfer tax. Mr. de Jong said the data, which must be provided on the new property transfer tax return form, will be shared with Revenue Canada.
Such data are supposed to be collected under Canadian law, but a federal audit of paperwork in Vancouver realty offices found many instances where required filings were significantly lacking.
British Columbia’s new data collection rules mean that it is going further than provinces such as Ontario, which restricts its information gathering to only the questions asked by FinTRAC.
“There’s obviously ways to verify citizenship,” Mr. de Jong said, “so I’m relatively comfortable that the mechanism exists there to cross-reference. And there’s a pretty strong and robust audit function in place even now around the property transfer tax.”
However, it is unlikely that the new disclosure requirements will produce useful numbers until next year.Report Typo/Error
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