Vancouver's housing market could be in for a shock on Friday when the Greater Vancouver Real Estate Board reports on housing sales data for August, offering the first official glimpse of the effects of British Columbia's new tax on foreign home buyers.
Early numbers from the real estate board released in the middle of the month showed a sharp drop in housing sales in the region in the wake of the provincial government's Aug. 2 introduction of a 15-per-cent land transfer tax on foreign buyers. The tax applies to sales of houses in Vancouver and 21 surrounding communities to buyers who are neither Canadian citizens nor permanent residents.
Sales of detached houses plunged by 66 per cent in the first two weeks of August compared with the same period last year, the board reported. Condo sales fell 42 per cent. A study of daily data from the Multiple Listings Service posted on the blog of Rob Chipman of Coronet Realty suggests the trend continued to the end of the month, with a sharp double-digit drop in sales. Average prices also appear to have fallen from July, as sales shift toward less expensive homes in the area.
The B.C. government unveiled its tax plan on July 25. It took effect only days later, on Aug. 2, giving buyers and sellers little time to prepare for a new fee that amounts to hundreds of thousands on a multimillion-dollar house.
In Vancouver, the market has been rife with tales of sellers slashing prices on multimillion-dollar houses, while realtors outside the communities affected by the foreign-buyer rules have taken to boasting of their region's tax-free status in their listings.
The tax has also garnered substantial media coverage in China. Juwai.com, a service that caters to Chinese-language buyers looking for real estate abroad, reported that searches on its site for homes above $1-million in Vancouver fell 55 per cent in August.
The province's initial numbers showed that about one in 10 homes sold in the region within five weeks leading up to the tax announcement went to foreign buyers. The figure rose as high as 18 per cent in the suburb of Richmond. Some realtors predicted the drop in sales would be more dramatic as local buyers opted to wait on the sidelines in August to judge the impact of the new tax.
Adding to expectations of a slowdown in home sales last month is that the new tax comes as Vancouver's market was showing signs of cooling. Home sales were down 19 per cent in July from a year earlier, while the number of new homes under construction reached its highest level in decades. Even without the extra dose of uncertainty from the new tax, August is typically a slow month for the housing market, with home sales picking up again in the fall.
Industry observers, however, are divided on how effective the tax will be in the long run in cooling Vancouver's red-hot market. By July, benchmark prices had risen more than 30 per cent from July last year.
Toronto-Dominion Bank economists said this week they expected home prices in the Greater Vancouver Area to fall as much as 10 per cent from their peak in April of this year to mid-2017. The bank attributed the slowdown primarily to eroding affordability, a rising supply of new homes under construction and the expectation that mortgage rates will gradually start to increase. But the foreign buyer tax would likely cause Vancouver's volatile housing market to cool down faster than it has in previous corrections, TD said.
Central 1 Credit Union predicted Vancouver-region home sales will experience a "temporary, but substantial" drop of 10 per cent by the end of next year, before rebounding in 2018. Prices, however, would end the year up 20 per cent, the credit union predicted, and would continue to rise at least 4 per cent annually for the next two years.
Even with July's slowdown in sales, Vancouver remained a tight market heading in August, with relatively few listings to meet demand, wrote National Bank economist Marc Pinsonneault. The strong economy and steady employment growth over the past year will also help support domestic demand for housing, he said. "The story is not solely about alleged foreign capital flows," Mr. Pinsonneault wrote in an analysis last month. earlier this month.