What happened in Vancouver?
One week ago (August 2), British Columbia implemented a new Property Transfer Tax on foreign investors purchasing homes in Metro Vancouver. Not surprisingly, an implosion of real estate deals resulted immediately. According to the Financial Post (Aug. 8, 2016), “At least 427 deals are likely to collapse due to the new measure, [says] Dan Morrison, president of the Real Estate Board of Greater Vancouver, citing responses from 27 brokers to an e-mail inquiry.”
The domino effect will be sizeable both in terms of money and time, certainly affecting sales to foreign investors, but also to locals – who are exempt from the tax but who will feel the effects nonetheless if they are selling their existing homes to foreign buyers. Pre-construction condos, for example, could see the results years from now.
The tax was instituted in an effort to “cool” Vancouver’s sizzling housing market, where the average home price is in the $1.5 million range. The cost of housing in Vancouver soared 38% in a single year.
So how will this affect Toronto?
It is expected that Toronto will become even more attractive to foreign investors, increasing prices that are already straining affordability.
Toronto is carefully watching the affect of the tax in Vancouver. According to CBC News, “Ontario Finance Minister Charles Sousa has said he is examining the tax “very closely” as a possible measure to address Toronto home prices.”
CBC reports that, “The average cost of a home in the city in June was $746,546, up nearly 17 per cent from the same month last year, according to the Canadian Real Estate Association. In comparison, Vancouver home prices averaged $1,026,207, a rise of more than 11 per cent.”
The report included Mayor John Tory’s reaction to the tax in Vancouver. “Tory hasn’t ruled out a similar tax for foreigners buying property in Toronto. But he stressed he would want to know more about its efficacy before bringing in such a levy.
“I think in the end what people want to know is this: they want to know that if we’re going to do anything, that it’s going to be effective, not that we’re going to do something for kind of show business or political purposes or even for revenue-generating purposes,” he said last week.”
The experts are divided on the effectiveness of this tax resulting in more affordable housing for citizens of Vancouver. Many think it will do little to bring housing prices down enough to make them affordable. Many of the experts believe that it is the low supply of homes in Vancouver that is fuelling the wildly escalating prices.
Some industry insiders believe that the tax is impotent; foreign investors can skirt it easily by setting up bare trusts and creating companies that become the owner of the trust. The company can purchase a property, which can then be sold within the bare trust without having to change the company’s name on the title of the property.
Most real estate professionals are not happy that the tax was sprung on the market with only 8 days notice, believing that the government rushed into the tax without properly researching its effects. According to Cailey Heaps Estrin (Toronto Royal LePage), “In markets where every policy, every tax and every decision has multiple targets, a more thoughtful approach is probably a better approach.”