As of August 2nd, B.C.’s new 15 per cent transfer tax on residential property purchases takes effect for non-Canadians and non-residents buying houses in Metro Vancouver. By curtailing foreign demand, the government hopes to take the wind out of soaring housing prices. Instead, the government may be blundering big time, distorting labour and housing markets while hurting homeowners — especially those with large mortgages. Foreign purchasers account for roughly 10 per cent of the investments in the Vancouver housing market, giving the new tax potentially large impacts. Foreigners have many investment choices, including Boston, Melbourne, Toronto and San Francisco, making Vancouver a relatively small market subject to highly competitive housing prices. Under this competitive scenario, the impact of the land-transfer tax would fall on Vancouver homeowners, leading housing prices to decline by as much as the new tax’s full 15 per cent, using a basic economic model to determine “who pays the tax.” Now Real estate deals are collapsing in B.C. for buyers and sellers who missed the deadline to be exempt from the recently created 15 per cent foreign-buyer aimed tax. Realtors estimate that 3,000-4,000 deals are in limbo, as they had not closed before the tax came into effect Aug. 2. It’s not clear yet how many deals have collapsed, but Fraser Valley realtors in North Delta, Surrey, White Rock, Langley, Abbotsford and Mission B.C. say foreign investors are indeed backing out of agreements because of the tax.
The Toronto Real Estate Board says the average resale price of a home in the Greater Toronto Area climbed to $709,825 last month, up more than 16 per cent compared to a year ago. The average price of a detached home soared 21 per cent from July 2015 to $952,983. The real estate board says there were 9,989 homes that changed hands in the Greater Toronto Area last month — the highest number ever recorded in July. That’s up from 9,813 in July of last year. The number of new listings shrank roughly seven per cent to 13,542 last month, reflecting what the real estate board calls a “troubling trend” as demand outpaces supply in the Toronto area. The average condo price in the Greater Toronto Area rose 9.2 per cent to $406,865.
Home sales in Metro Vancouver fell 18.9% in July, compared with the same month a year ago, and 26.7%, compared with June, according to statistics that the Real Estate Board of Greater Vancouver released August 3.Prices, however, continued to rise. A benchmark home in the region is now $930,400, or 32.6% more than a year ago. That price is 1.4% more than the $917,800 benchmark price in June.It was low sales across the region, however, that has broken a longtime trend. This is the first time since January, when 2,519 sales closed, that fewer than 4,000 homes were sold in the region, given that a mere 3,978 sales transacted during what is supposed to be the prime sales month of July. The sluggish sales may have stemmed in part from the B.C. government’s July 25 announcement that foreign home buyers would have to pay a 15% tax, starting August 2, when they buy a home in Metro Vancouver. Many in the industry say that announcement put a chill in the market.
Real estate is like a crutch now, propping up Canada’s economy as oil has taken a tumble. Canada’s GDP fell by 0.6 per cent last month, but the real estate sector has kept growing. It has grown so much that it represents approximately half of the country’s economic growth, Brian DePratto, an economist with TD Bank, told BNN following the release of a Statistics Canada report last week. “If you go back and look at all those monthly GDP reports, even though real estate is the third biggest — it’s only about 12.5 per cent of the economy — it was responsible for about half of the growth on average over that time, so really an outsized contribution from that sector on that longer-term basis,” DePratto said.
The B.C. NDP is accusing the province’s top condo marketer, Bob Rennie, of getting advance notice on a new 15-per cent tax on foreign homebuyers — but Rennie is adamantly denying the allegation. In a letter to Premier Christy Clark, Eby said it was “easy to speculate” why the government would do such a thing: Rennie is the chair of the B.C. Liberals’ fundraising committee but also the so-called “Condo King” and an influential real estate marketer. “This information is highly valuable,” Eby said on Tuesday. “He’s almost uniquely positioned to profit from the information, [which] raises a whole lot of questions: who told Mr. Rennie, did he use the information, did he act on it, did he tell anyone else?”
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Gavin is a media relations consultant and news junkie based out of Collingwood, Ontario.