Oh what a wonderful “first blog” now that I’m back up and running!
Some of you may have heard enough about this already, but what the B.C. government is doing right now can be considered a litmus test for the rest of the country, Toronto in particular!
And perhaps another point of discussion: if investors pull out of Vancouver, will they come to Toronto?
Yet another reason why our market will continue to rise…
I haven’t been to Vancouver since 1998.
And it wasn’t even Vancouver, per se. It was the Vancouver airport.
There was a massive storm brewing on the west coast, and flying out of Salt Lake City, Utah, usually had us heading to Denver. But on this day, we were sent west to Vancouver, where we were to catch a flight directly to Toronto.
Once we arrived in Vancouver, we were told there were only two seats on the plane for the four of us – my mom, my dad, my brother, and myself.
My Dad told us that my mother would be heading home with either my brother or myself.
And we would flip a coin to see who would accompany her.
Even though I would be getting off the plane in Toronto and going right back to McMaster University, I still didn’t want to be the one left behind in the airport for a night. My Dad’s idea that “we’ll check out a Canucks game” didn’t sell me.
Evidently, I won the coin flip.
My brother was crushed.
We didn’t speak, or make eye contact, for the next hour.
Ten minutes before the flight, two seats became available, and all was made well in the Fleming family again.
That is my only experience with the city of Vancouver.
I wish I could tell you all about my travels through the city and the surrounding area, trips up and down the coast, and forays into the real estate market.
But I can’t.
I only know what I read.
And for most of us here in Toronto, trying to make sense of the insanely-hot 2016 Toronto real estate market, we look at Vancouver and say, “At least we don’t have it that bad.”
The average home price in Toronto in June of 2016 was $746,546, and that made us all cringe.
But the average home price in Vancouver in June of 2016 was $1,026,207 – a 37% premium over Toronto.
The house prices in Vancouver are so high, and are increasing so rapidly, that people have been using the words “epidemic” and “crisis” to describe the market.
We’ve talked on Toronto Realty Blog before about whether or not the Canadian government should restrict foreign ownership, and if so, how to do so.
And last month, we talked about a potential “vacancy tax” on Vancouver properties.
Well, all the speculation has come to an end.
The B.C. government dropped an absolute bombshell on Monday when they announced that foreign buyers would now pay a whopping 15% transfer tax on properties over $2,000,000.
The article first broke in the Globe & Mail, HERE, and was on the front page of Tuesday’s paper edition.
As the story explains, the B.C. government tracked all the properties registered between June 10th and June 29th.
A whopping 14% of the properties registered in Richmond during that time period were purchased by foreign buyers.
That’s more than the estimates that CMHC feed us, and it’s in line with the doomsday predictions that market bears provide.
Metro Vancouver is “only” 5%, but five percent is still a pretty large chunk, especially when you consider that many foreign-bought properties aren’t registered as such, because they’re bought through companies, or relatives of the buyers who are either Canadian citizens, or permanent residents.
As for the more important number – that fifteen percent tax that’s going to apply to properties over $2,000,000, I think that’s in a word, insane.
Nobody in their right mind is going to pay a 15% tax on real estate.
Our 13% HST is so ingrained in our minds that we cease to complain when a $20 purchase costs $22.60. We’re completely used to it.
Buying a car, on the other hand, is about the only time when we really complain. HST? On a purchase that big? That’s tough to swallow.
We have never had taxes this large on the purchase of real estate.
HST on new homes is always “included in” the sale price, whether the developer throws that back on the buyer, or whether the developer eats the cost – the buyer almost never feels it.
But the idea of a buyer of a $2,000,000 house in Vancouver forking over $300,000 is insane.
And in theory, it will never happen.
In theory, what the government of B.C. just did today is utterly and completely killing the foreign demand for real estate.
In theory, of course.
Because that’s all we have to go on at this point.
Do you really believe that a would-be buyer of a $4,000,000 property is going to pay a $600,000 fee to buy that property?
Not a chance.
So then what would they do, if they still wanted to buy?
They’d find a way around it.
That’s what savvy investors and multi-millionaires have been doing since the dawn of man.
Sooner or later, however it happens, these investors will find a way around it.
And if they don’t, then the market for real estate in Vancouver drops in value.
It’s just a series of “if” statements, really.
If the government implements this new tax successfully.
And if the purchase and sale of real estate comes with a new form, or new responsibility on behalf of the real estate agents, lawyers, and mortgage brokers.
And if the properties are registered properly.
And if the government monitors the registration.
And if the government investigates and audits all transactions to look for loopholes.
Well, then, if all that happens, then all the foreign investors will disappear.
And as we know, if you take away a massive chunk of demand, and supply remains the same, then the price of that good or service in the marketplace will drop.
Part of me thinks that this isn’t really meant to be a “tax” but rather a massive red flag, raised really, really high, so that everybody overseas can see it.
“See this red flag? It means ‘don’t buy real estate here.’ Go somewhere else, because you’d have to pay a massive tax that you’re not actually going to pay.”
Part of me thinks that the B.C. government didn’t enact this “tax” as a measure to collect revenue, but actually as a tool to drive away all foreign demand.
Effectively, the government has banned foreign investment, without banning it.
Unless you think somebody is still going to buy a $4,000,000 house and pay a $600,000 fee, but I can’t imagine any of you think that’s going to happen.
Vancouver has been used as a massive safety deposit box for foreign money for a long time. It was easy, safe, and they made a ton of money when really they just wanted to get their money out of their own country, political climate, and banking industry, and probably would have taken a net zero.
But with this new “tax,” the party is going to move on.
And while it is incredibly naive to think that all the demand is going to come to Toronto, some of it undoubtedly will.
Areas near Vancouver like Kelowna that fall outside the “Metro Vancouver” net where the 15% tax will apply might see a massive surge in demand, but so too could San Francisco, or New York, or Paris, or London, or anywhere else in the world.
A lot of the doomsdayers are already predicting massive price increases in Toronto. Although with a 16.8% appreciation in the average home price as of this past June, what would a “massive price increase” look like?
The irony is, it might behoove the Ontario or Toronto government to start looking into this.
Governments, in my opinion, are far more reactive than proactive.
What we saw today from the B.C. government was an incredibly reactive move, that came far too late, and was an extreme measure.
Perhaps Toronto’s government should spend fifteen minutes at their Monday Meeting next week to discuss what could happen in Toronto, if we saw a surge in demand.
Of course, anything at the government level has to consist of a “committee” to do a “study” to release “findings,” by ten people for six months who get paid $4,000,000 at the taxpayers’ expense. But I’ll save those particular views for another time…
Rest assured, what’s going to happen in Vancouver in the coming months is going to be a litmus test for the rest of the country.
There’s no doubt that the B.C. government, along with CMHC and the Finance Department, and the governments of Toronto and Ontario (if they have any sense at all) will be monitoring this with great interest.
I’d be remiss if I didn’t reiterate, just one last time, how shocked I am at this announcement.
The idea of the “vacancy tax” was proposed last month, and it was a novel concept, and something few people thought would actually be implemented.
But a straight 15% tax on ALL foreign buyers? That’s addressing the elephant in the room.
No “vacant property” talk anymore – now we’re talking about FOREIGNERS.
When did that become a bad word?
It comes with a negative connotation.
And yet the B.C. government today targeted “foreign buyers.”
I’m just shocked.
I didn’t think they had it in them.
Few governments do. At least, north of the 49th parallel…
Make no mistake – after all the changes the CMHC implemented over the last eight years in efforts to “cool the housing market,” the B.C. government finally realized that none of it was working. No CMHC policy was going to be big enough to have an effect.
And thus a 15% tax.
I never thought I’d see the day…