On Monday, July 25 the B.C. legislature convened to discuss alterations to Vancouver’s charter that will allow them to impose a tax on empty houses. Although the parameters of the vacant home tax are still up for discussion, the province announced one significant change in policy: a 15% foreign buyer’s tax in the Metro Vancouver region.
Started on August 2, non-Canadian purchasers and foreign-controlled firms will now see an extra 15% property transfer tax applied on all residential real estate investments in Vancouver. The purpose of this tax is to lower foreign demand and increase local supply, a looming issue that Metro Vancouver has been suffering from in the past year or so.
Vancouver’s housing bubble has been pumped with overseas investors, while the local population continually struggles to find affordable housing. Premier Christy Clark expressed her concerns of the issue on Monday, stating “we are taking measures to ensure that homeownership remains in reach of the middle class and that we continue to put British Columbians first.”
Data accumulated by the provincial government shows that there has already been over $1 billion in BC property investment by foreigners from June 10 to July 14 alone, of which 86% were in the surrounding Vancouver region. So, in a city where an average single-detached home sells for a whopping $1.56 million, a foreign buyer’s tax might actually deter offshore investment. For example, a $2 million property now has an additional tax of $300,000. Furthermore, fines for offences include the amount of unpaid tax and interest plus an additional $100,000 on individuals and $200,000 for corporations. This tax could result in a high penalty that not all investors are willing to fork out.
Although revenue is not the incentive for imposing the new foreign buyer’s tax, it definitely generates a good amount of money for the provincial government. The proceeds are said to go towards further restoring housing supply and affordability. Economists believe other provinces should lead by example and impose a similar tax to protect their housing markets. Ontario would be particularly wise to do since they are experiencing similar issues with Toronto’s real estate market. Furthermore, revenue could easily be put toward offsetting the eastern province’s budgetary deficit.
On the contrary, British Columbia is in no need of the financial incentive and locals have voiced their concern 0ver the negative impact this tax could have on the provincial economy. Foreigners who have lived in Vancouver for years now fear that they will also be taxed despite being a fully assimilated “local” in British Columbian society. Furthermore, an estimated 2,300 pre-sale properties in the Metro Vancouver region are connected to foreign buyers who scrambled to close the deals before the implementation date of the tax on August 2.
Of course, the foreign buyer’s tax is in its infant stages. There are still countless kinks to iron out since it’s announcement. For one, the government’s legislation will accommodate for flexibility in the 15% tax, increasing or decreasing it by 5% as it sees fit in the future. Still, there is certainly no way to predict how Vancouver’s housing market will react to the extra toll in the short and long run. Nevertheless, the municipal and provincial government has begun to address the housing bubble, hopefully taking a step or two closer to increasing supply and deflating outrageously high prices.