The initial impact of the Vancouver Foreign Buyer Tax
One of the hottest real estate topics in Canada (and in the halls of legislatures across the country) is the recently implemented 15% tax on foreign buyers of Greater Vancouver real estate.
Questions being thrown around include Is it high enough? Is it too high? Is it legal under current international treaties? Should there have been a warning period? Will it have the desired effect, or will the unintended consequences out-weigh the benefits.
Frankly, if you talk to 10 people, you get 15 opinions on this subject. But, as we have done for over 20 years, we like to step ‘Out of the Fray’ and look at the issue from practical terms.
Before we reach a conclusion, here are a few facts to consider:
1. The Vancouver housing market volumes and types of purchases were already on a 4 month slowing trend when this was implemented
2. Housing markets in the Fraser Valley were already feeling the impact of increased demand over the previous 6 months – before this tax was implement
3. Average Sale price is not a very good indicator of the health of a market, yet it will be used as a headline to shock. Remember, this tax will have a very large effect on higher end dwellings in Vancouver region. When we see a slowing in that sector, the math actually becomes greatly skewed. In simple terms, take a number of large priced sales out of the equation and it will look like the housing market prices are crashing, when in fact it is just a math anomaly. Be prepared for big yelling headlines about “The Vancouver Housing Market is Dropping/crashing/over!” I suggest you takea step back and remember that for some, math is hard.
4. The Federal Government is openly promoting the influx of new workers and investment from the very regions this tax will impact. It seems like each party pulling on a rope in a different direction. Imagine the confused message that we are sending the world. (Yes, they are laughing at our ineptness again).
5. The Mayor of Vancouver is openly trying to attract new “High-Tech” jobs to the City. But, as that is an international industry, competition for these jobs is high around the world. This tax directly affects the ability of these High-Tech companies in recruiting international talent to Vancouver. So, once again a mixed message.
6. Cap Rates on Apartment buildings in Greater Vancouver are already at nearly record lows. So even if someone, foreign or local, wished to buy a building and leave it as a rental, it wasn’t making much financial sense. Then, when you throw this 15% tax on top of it, it becomes even less attractive to foreign stable investment.
Given all of that AND so much more, BNN-TV asked me to pop in and discuss what we are seeing as the immediate impact of the tax (in month 1) and forecast its impact over the coming years. It was a lively discussion to say the least AND it is sure to push some people’s buttons. The Vancouver Housing Market issue is complex, nuanced and has many supply AND demand factors affecting it. This tax is just one piece of a complex puzzle – an attempt to impact the ‘demand’ side of the equation.
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