July 29, 2016

Foreign Buyer Tax Money

Mike Hager in the Globe and Mail  on BC’s new foreign buyer tax, and what the Prov Gov’t will do with the revenue.

After trying to tamp down demand in Vancouver’s superheated housing market with a tax on foreign home buyers, British Columbia is now tackling supply, promising to use the tax revenue to fund affordable housing.

It is not known how much revenue will be generated from a 15-per-cent property transfer tax on foreign buyers of Metro Vancouver real estate, but Finance Minister Mike de Jong said it could be considerable.

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  1. Or not. I suspect many current buyers will simply abandon their contracts before completion resulting in no tax and that other transactions will be assigned to Canadian residents, also with no tax. Others will threaten to walk away from their contracts unless the seller eats the tax by lowering the contract amount, resulting in tax but out of the pocket of the local seller, not the foreign buyer. Beyond that I suspect that some future foreign buyers will buy lower priced properties than they would previously have done, resulting in both lower taxes and more pressure on the affordable end of the market. (That one is counterintuitive but if your goal is to have a personal haven in Vancouver then it would save tax to have a cheaper house and put the rest of your parking money in Victoria or Toronto at no tax. )

  2. I think we will see an IMMEDIATE drop in prices of 7.5-10% as seller and buyer will split this tax with more drop on the lower end of the market than the very high end. Plus the speculation party will cool immediately too.
    ==> It will have a significant impact !!
    Think about your average Point Grey or W-Van $3M shack: property transfer tax will be 17%+ .. over $500,000 ! Ouch !!
    Such a property will probably drop to about $2.8 or 2.7M which is the desired effect namely that locals get a 15% price advantage and somewhat lower prices. A major election ploy, too, as May 2017 is the next provincial election and the NDP has been barking up this tree for two or more years.

  3. Ok, was this legislative change just aimed at Vancouver? It doesn’t solve the problem entirely when Vancouver Island area and Okanagan Valley still remain desirable foreign investor areas in B.C. Oh they’ll catch on…
    In today’s press, Calgary area real estate are happily speculating: http://calgaryherald.com/business/real-estate/b-c-tax-could-drive-more-chinese-buyers-to-calgary-realtors-say
    It has happened already in tiny baby steps in Calgary: if one understands the differences among older multi-generational, assimilated Canadian-born Chinese, international students and those who are just here recently ..speaking fluent Mandarin, with money to drive a nice car, a style of dress and mannerisms, that bespeaks to Canadian-born “fresh off the boat” but still quite urban folks. After all we’re close to the Rockies, if the flat prairies is too dull for urban Chinese: clean air, frequent bright blue skies, turquoise glacial waters, a decent public health care system and local food that is safe …..
    Has anyone read why the Chinese nationals love Canada?

  4. If, as has been mentioned elsewhere, this tax is actually “illegal” in the sense that it goes against NAFTA. Apparently we can’t apply any tax to a foreigner that isn’t applied to a Canadian because it’s not “fair”.
    You know what’s not fair? The fact that foreigners can buy up our entire country and even live here without paying a dime in income tax. All the benefits with none of the costs. No wonder so many are parking their money here.
    As for this 15% tax (should it actually hold up)…
    It’s beyond stupid to apply it only to Metro Vancouver. To be fair to Canadians a way must be found to collect a share of all the untaxed money flowing into this country whether it’s heading for Kerrisdale, Kitchener or Yellowknife.

    1. Indeed.
      A large share of this foreign mney will now flow to other regions, first to Victoria which will further distort prices there, then to Whistler, Sunshine Coast, rest of Vancouver Island and Abbotsford, then to Kelowna and rest of Okanagan.
      To my knowledge 15% exists in Singapore, Hongkong, LOndon and Sydney. Florida charges non-residents an annual extra property tax. in Switzerland many counties have extra charges for non-residents.
      It was the right move, but it will have consequences, both intended and unintended !
      The biggest advantage is that it gives locals a 15% price advantage. Many loopholes will be widely exploited. CRA better start hiring.

      1. Does anybody remember FIRA? The Foreign Investment Review Agency. It looked at any outside investments or purchases and determined if it served Canada or not.
        This little tax is nothing compared to how we used to protect ourselves.

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