On August 2, 2016, British Columbia (BC) introduced a new 15% property transfer tax on foreign real estate buyers in Vancouver, intended to calm soaring prices in the province.
The new tax would apply to buyers who are neither Canadian citizens nor permanent residents. The definition of foreign buyer appears to include international students and temporary foreign workers. The reaction so far has been mixed, but clearly, it has raised issues on a number of fronts.
Enforcement
The new tax is quite hefty, amounting to $150,000 on a $1 million property or $75,000 on a $500,000 condominium. The government said it would introduce measures to prevent foreign buyers from bending the rules and threatened stiff fines – $100,000 for individuals and $200,000 for corporations who don’t comply.
Effectiveness
Other jurisdictions e.g. Australia, United Kingdom, Switzerland, and Singapore have introduced measures to limit or reduce foreign real estate investment. We don’t know just how price sensitive foreign investors might be to property in Vancouver, but we do have subjective evidence that some foreign buyers have driven up residential real estate prices very rapidly, especially in multiple bidding situations, with little concern for inherent value. It is doubtful that the new transfer tax, even at 15%, will render housing dramatically more affordable in the Greater Vancouver region.
Some British Columbia’s believe that the tax should be increased to 40% to counterbalance the surreal price jumps they’ve witnessed over the last year alone. I believe at 15%, the market will slow down or cool off over the coming months, but it’s hard to call the long-term implications as we move into 2017.
South Surrey Seller Blindsided by Tax
[1] A retired couple lost a sale on their White Rock home on the day the foreign buyer tax was announced, resulting in them being stuck with two mortgages. The couple made a deal to sell their home — subject to a home inspection — the day before the announcement. The following day, in the middle of the inspection, the buyers backed out unable to drop an extra $250,000.
Meanwhile, the couple had already purchased a smaller, one-level home in Langley a few weeks earlier. They are retiring and downsizing and felt they had no choice but to buy first and sell later, given the specific type of home they needed knee surgeries and falls.
Soon-to-be BC Resident on the Hook for an Extra $54,000 in Taxes
[2] British Columbian Hamed Ahmadi, who is in the middle of a condo purchase, has suddenly found himself on the hook for an extra $54,000 in taxes. Ahmadi is still months away from getting permanent resident status, putting him in the unlucky group of middle-class British Columbians who have found themselves targeted by a tax purportedly imposed to crack down on rich real estate speculators from overseas.
[1] Salma Nurmohamed, “Retiring South Surrey couple stuck with 2 mortgages after foreign buyer tax” CBC News, accessed August 6, 2016, http://www.cbc.ca/news/canada/british-columbia/foreign-buyer-tax-15-per-cent-metro-vancouver-1.3709442
[2] Andrew Weichel, “‘I’ve never been this hopeless’: B.C. man blindsided by foreign buyer tax” CTV News, accessed August 6, 2016, http://bc.ctvnews.ca/i-ve-never-been-this-hopeless-b-c-man-blindsided-by-foreign-buyer-tax-1.3014108
