There are rumblings that the recent 15 per cent foreign buyer tax implemented by the British Columbia government is nothing more than a repackaged version of the deplorable, historical ‘Chinese Head Tax’. But comparing the two is both disingenuous and a fine example of lazy journalism – and not just because the British Columbia tax applies to all nationalities. Moreover, it is because a Canadian attempting to buy a house on the Chinese island of Hong Kong would face exactly the same tax.
That’s right, foreign buyers purchasing real estate in Hong Kong, where the problems associated with chronic land shortage closely mirror those of Vancouver, are subject to an additional 15 per cent buyer’s ‘stamp duty’. Even in Mainland China, where ‘qualified’ individual and corporate foreign buyers are able to purchase as many properties as they wish, they are in some cases subject to local housing purchase limits. For instance, in Shanghai, people without a locally registered household are only able to buy one property. Not to mention the fact that fee simple does not exist in China.
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In fact, Canada and China are amongst a group of seventeen different countries that have implemented some form of regulation designed to gain a measure of control over their national (or select local) property markets by placing extra rules governing purchases by foreigners. These seventeen countries can be split into two groups – the restrictive dozen who have sought to better monitor and/or reduce the amount of foreign investment by regulating the purchase of property by foreigners and the incentivized five who seek to increase foreign investment, while better controlling it, by creating incentives for foreigners to purchase property.
Vietnam, one of the few communist countries remaining in the world is, unsurprisingly, at the draconian end of the scale for the restrictive dozen. In Vietnam, foreigners are not allowed to own property of any type under any circumstances. The same is basically true in India, where a foreign national of non-Indian origin is not allowed to own any property in India unless the property has been acquired by way of inheritance from a person who was an Indian resident.
Two other Asian countries are included in the restrictive twelve. In Singapore, much like Vancouver and Hong Kong, foreign buyers must pay an additional 15 per cent tax. All three of these jurisdictions are dealing with a similar problem – a severe lack of land available for building due to the local geography. As such, they have placed a premium on properties for foreign buyers in an effort to ensure locals are not completely priced out of the market. Meanwhile, Indonesia has also put in place several requirements that must be met for foreign nationals to own property, including a minimum purchase price.
At the other end of the scale of the restrictive twelve is the United States of America. The only restriction placed on foreign buyers in the U.S. is that the identities of non-American buyers making all-cash purchases are required in Manhattan, Miami-Dade County, California, and Texas. This requirement, limited to some of the U.S.’s hottest property markets – ones favoured by drug lords and international criminals – is designed more to curb money laundering and fraud than it is to deter foreign investment.
Other countries that have placed restrictions on foreign buyers include Fiji, New Zealand, Australia and Switzerland. In Switzerland, where foreign buyers are limited in terms of both place and size, non-residents are confined to buying in key holiday zones, predominantly in ski resorts and areas surrounding both Montreaux and Lugano, and are limited to buying properties measuring 200 sq. m. or less of living space (not including balconies and basements).
In Australia, foreigner buyers are limited to the purchase of newly built homes. An extra stamp duty, similar to Vancouver and Hong Kong, has also been added in Victoria, Queensland, and New South Wales, while other states also charge extra land tax. In New Zealand, the tax on foreign buyers is designed to curb speculation and is limited to second home properties bought and sold within two years. Foreign buyers in New Zealand also have to apply for a government ID for tax purposes, while some NZ banks refuse to grant mortgages to foreign buyers.
Fiji completely restricts land sales to foreign buyers within the borders of its towns. Foreigners who already own a house are not allowed to sell that property to other foreigners, while foreigners who own land but have not built a house must do so within two years or face a fine equal to 10 per cent of the property value every six months.
Unlike the restrictive twelve, a handful of countries seeking to better control foreign investment in property have approached the problem in a different manner – by putting in place incentives designed to gear foreign investment toward strategic imperatives. The Incentivized Five countries are Spain, Portugal, Greece, Cyprus, and Turkey. The first four of these countries are part of the European Union, while Turkey is in ongoing negotiations to join the EU.
The Spanish government is currently preparing a new law allowing non-EU residents who purchase homes priced above €500,000 to gain residency. Portugal already has a similar law that allows non-EU investors to gain residency by purchasing a property valued at more than €500,000. In the case of Portugal, official residency status can also be acquired by transferring more than €1 million in capital into the country, or by setting up a business that creates more than 30 jobs.
See some of the top reasons Chinese investors like Canadian real estate here.
Similar, but cheaper, incentives are in place in both Greece and Cyprus, where foreign nationals must purchase property valued at more than €250,000 and €300,000 respectively in order to gain residence. Turkey allows investors from more than 180 countries to purchase real estate without restrictions while also providing incentives including automatic one-year residency permits and the rights of Turkish citizenship after five years.
It is made clear by the wide range of countries seeking to implement some kind of control over an influx of foreign money in an increasingly globalized world, combined with the fact that, by comparison to some other countries, Canada’s rules are really not that onerous, and instead of race, are borne out of necessity and practicality.
We can all debate the financial and regulatory effects and outcomes of the British Columbia initiative until the cows comes home, and indeed there are many arguments to be made both for and against. Many believe that Canada might be better served by a national strategy of restrictions and incentives designed to drive investment to less popular local markets rather than the patchwork of solutions that is emerging. But to label the legislation racially motivated or discriminatory, is to saddle it with an undeserved and baseless tax of its own.
Should Canada’s national housing strategy aim to ‘spread the wealth’? See here.
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Gavin is a media relations consultant and news junkie based out of Collingwood, Ontario.