The new B.C. tax on foreign buyers' real estate purchases came into effect on August 2. With the first month of data now available, analysts have already started to see an impact on the Vancouver housing market.
A statement from British Columbia's Finance Ministry shows that on July 29 – the last business day before the 15% tax took effect – more than $850 million in property transactions were registered by foreign nationals, including 55% of the residential property deals in Metro Vancouver. Government statistics go on to show declines for the month of August, with just 60 property transactions in Metro Vancouver involving foreign buyers. By comparison, there were 1,974 deals in the same area from June 10 through August 1 this year. Canadian Real Estate Association sales numbers also show a marked difference for Vancouver in August: while national sales dropped by 3.1% from July, Vancouver transactions fell by 18.8%.
The declining market doesn't appear to have brought down skyrocketing house prices yet, which has some observers concerned. Swiss bank UBS ranks Vancouver as the #1 city globally at risk of a housing bubble. That report specifically mentions foreign investors as a contributing factor to increases in the cost of purchasing property in the region.
Consequence or Coincidence? Buyers Heading South, East
Realty listings website Juwai.com serves Chinese buyers of homes abroad; their officials are seeing more interest in the Seattle and Toronto markets through the month of August, with inquiries rising 143% and 142% respectively compared to the same time last year.
Was this shift something that was on the horizon anyway? "Vancouver has been losing local and overseas buyers all year," Juwai president of the Americas Matthew Moore stated. "The shift is towards cities with similar appeal but lower entry prices."
Even domestic buyers are looking towards eastern Canada, with news reports of "affordability refugees" making headlines as far away as St. John's.
Debate and Speculation Over Similar Ontario Tax
With the Toronto market firmly in the sights of property seekers, there is no shortage of speculation that Ontario will need to implement a tax similar to B.C.'s. Former federal finance minister Joe Oliver wrote in the National Post:
"While we wait for the prime minister to fulfill his promise to ‘take measures so that the affordability of homes is accessible for more Canadians,' we require action at the provincial level. A tax on foreign purchases in the red-hot GTA market would address a rapidly looming problem."
On the other side of the argument, Toronto real estate lawyer Bob Aaron warns, "The perception of the tax, rather than the tax itself caused a slump in the market and if we had a slump in the market the default rate in mortgages across the board would be horrible."
Final Notes
The full impact of the B.C. foreign home buyers' tax will likely not be seen for months; however, these first indicators do seem to show that the tax will have the desired effect of cooling the Vancouver market. "We expect some of the extreme weakness in August to be reversed in the coming months as the shock of the new land transfer tax on foreign buyers dissipates," writes Toronto-Dominion Bank economist Diana Petramala.
Looking ahead to your home purchase? It's never too early to contact Auxilium Mortgage to speak with one of our planners. Call Toll-Free 1-855-590-6520 or visit us at 307 Goldstream Avenue during regular business hours, Monday through Friday 8:30 a.m. – 5:00 p.m. Our team can also arrange an appointment evenings or weekends to work with you.
Auxilium Mortgage Corporation is based in Victoria, BC and works with clients locally and across Canada. The Auxilium team has over 100 years of combined financial experience and access to dozens of lenders to help you meet your goals.
