Too soon to judge tax on foreigners, B.C. says as house sales stall

Friday, August 26th, 2016

MLS figures show house sales in Metro Vancouver have slowed dramatically

Sam Cooper
The Province

The B.C. government says it is premature to judge the effect of its foreign buyer tax, even as figures show that sales of detached houses in Metro Vancouver have plunged since the tax was introduced on Aug. 2.

“It’s too soon to conclude how the real estate market has responded to the additional tax,” said a statement on Thursday from the ministry, which has been criticized for abruptly introducing the tax. “The intent is to slow the rate of price growth and cool demand.”

Postmedia News reported this week that MLS figures show sales of single-family homes in Metro Vancouver home plunged by as much as 86 per cent in the first half of August, compared to the same period in 2015. Sales drops were steepest in markets where foreign buyers are most dominant, such as Richmond and West Vancouver.

The question now is whether significant price drops will follow the steep falls in sales. Already, sellers of luxury homes have had to lower their asking prices, MLS shows.

Vancouver Point Grey MLA David Eby, the NDP housing critic, said he believes the government intended to shock the market.

“Of course, they wanted to cause a panic, and they’ve got what they wanted,” Eby said. “And the only question is whether they will see it through or back off if polls go against them.”

UBC real estate economist Tom Davidoff said he believes Victoria might reduce the 15 per cent property transfer tax to 10 per cent, which is allowed in the tax legislation, if Metro Vancouver home prices drop dramatically in coming months.

“When I was told about the tax my reaction was ‘Wow, that is bold.’ It was like a megaton bomb,” Davidoff said. “It is consistent with shocking the system, and it was a loud and clear message.”

As soon as the tax was introduced in late July, the Greater Vancouver Real Estate Board complained the government had moved too rapidly and without consultation.

“I personally was shocked. Everyone was,” realtor Steve Saretsky said. “A lot of people were saying ‘They are going to kill the market. What are they doing?’”

“When a tax policy decision is made, there may be those who feel that the timing of the change should be different,” the ministry statement said. “We’ve found that the fairest and most efficient date for a change is usually to begin immediately after, or as soon as possible after, the change has been announced.”

While sales dropped 82 per cent in Eby’s Kitsilano riding in August 2016 compared to August 2015, he said homeowners there still don’t believe prices will drop sharply. In an indication of the changing market though, one of the sales this month was of a house in the 4000-block of West 15th Avenue that was listed for $4 million, but sold for $3.8 million. In comparison, in August 2015 a nearby West 12th Avenue home was listed for $4 million and sold for $5.86 million.

While the consensus of Point Grey residents seems to be that the market will pick up in September, Eby said, “I talk to many people who openly say they want a crash so that houses reflect local incomes and they can potentially raise a family in Metro Vancouver.”

Eby said an NDP government would take other measures to regulate the housing market, including taxing property transactions for offshore investors who represent themselves on land titles as “students” or “housewives” and likely pay little or no income tax in B.C. The NDP would also set up a money laundering and tax evasion unit, which Eby believes would generate revenue through seizing real estate assets related to crime, and collecting back taxes.

Realtors who are optimistic that Metro Vancouver home sales will bounce back in September note that a 15 per cent tax isn’t much of a deterrent to rich offshore buyers who have paid millions of dollars over asking prices in the past year.

But UBC’s Davidoff said he thinks the tax could prove very powerful by signalling to offshore investors that B.C.’s reputation of being an easy place to park money with “few questions asked” is a thing of the past. 

“In my opinion, if you take away the foreign buyer, I don’t know how prices don’t correct from 25 to 50 per cent,” Davidoff said.

© 2016 Postmedia Network Inc.

Comments are closed.