The Great Vancouver Foreign Buyers Exodus

The Great Vancouver Foreign Buyers Exodus

Since its introduction in July, the Vancouver tax has stirred up a garden variety of opinions, actions and reactions for foreign buyers. As a retroactive policy, the tax was meant to serve a 15% levy on investors of commercial or residential property within the metropolitan Vancouver area.


Within the most recent weeks, however, perspectives surrounding the efficiency of the 15% levy have reached a fever pitch. Some economists and real estate experts hold opinions that the market is experiencing a frozen period. Which at first glance may relieve those looking to buy, but may not stymie the most recent figures coming from Vancouver’s market.


What the tax means so far

The tax is potentially leading the highly-desired Greater Vancouver Area market for single detached homes towards a 44.6% sales decrease, a 4.2% price increase between July and early September, and 35.8% price increase noted by the Greater Vancouver Real Estate Board’s comprehensive report in comparison to August 2015 figures. These figures reflect Vancouver’s typical housing market cycle in the summer months. This may indicate housing prices will continue rising and falling for the foreseeable future.


The negative trend of sales and increasing values of benchmark prices, or the price a typical home might be valued in a geographical area, might not be the immediate fault of foreign investors since some industry professionals are still calling for an overall Vancouver home price increase by this time in September 2017.


More importantly, even if a price hike were inevitable, concerned Vancouver citizens and foreign investors alike seem to have a similar pressing question: how will the tax affect me and my want to buy a house?


For foreign investors, an answer is already encouraging actions: taking their (housing) business elsewhere. To Toronto and Seattle in Washington State, to be exact.


The backlash against British Columbia

With a series of investment migrations to more accommodating and less-taxing cities. In-depth policy investigations, expected and pursued legal cases, media journalists, politicians, and home buyers have taken chats behind the implications of taxing foreign investors into a full-on cultural and economic tug-of-war: who gets to own Canadian real estate and at what cost?


South of the Canadian and British Columbia border, Seattle’s housing market entertained a surge of investor interest and growing investment almost immediately after the additional property transfer tax was enforced, leading to scrutiny and cautious interest in whether or not Seattle ‘s suburbs will wind up as Vancouver’s has — an investment hub to some and a home to others. However, with an identical proximity to East Asian countries and a west coast appeal, leaving Vancouver’s market for Seattle with little doubt makes the Washington-area city an ideal second-best choice for investors.


Toronto and more popular regions of Ontario, on the other hand, are meeting a similar reception of scorned and tax-tired foreign housing investors. Unlike Seattle and Washington State, the city is Canada’s eastward commercial hub. Which still commands equal respect in terms of capital gains, material prestige and market competition — minus a new tax — for overseas buyers seeking relief as well as a return on their investments.


The new-found oasis in the Greater Toronto Area may not be long to last. Opinions of Toronto and its suburbs taking on a similar tax has met growing support by industry professionals, lawyers and top Canadian economists alike.


Others belonging to a more concerned majority are dubious of this (and similar) claims and see an additional property transfer tax taking hold in Ontario as a road best not ventured, calling it horrible for the Ontario market.


We were fortunate to gain an informative interview with Rhys Kesselman, a professor and Canada Research Chair in Public Finance at Simon Fraser University. We discovered some factors that pushed British Columbia politicians and citizens towards and against the tax. Both “for-and-against” views are being pursued in Toronto’s case, and how a property transfer tax for overseas investors could play out in Toronto, and by extension, Ontario.


Toronto: a safe haven or new tax target?

According to Professor Kesselman, Vancouver’s situation may result from a two-fold case, with speculations that support of the tax rose from “a majority local [citizen] support for foreign taxation and a concern for investors’ impact on local housing prices” which continue to rise. Opposition from overseas buyers (who are notably predominantly Hong Kong/Mainland Chinese citizens) hails as “vested interest in owning and buying property in an accessible market now closing its doors though the Vancouver tax” as leading causes.


Dr. Kesselman states that knowing how the tax is affecting Vancouver is still quite new to analyze by numbers and there are bound to be cases where “people can work around paying [the tax] by soliciting help from relatives who are citizens or permanent residents to buy the property for them.”


Though this is a possible circumstance, similar wishes to have and not have a comparable tax added in Toronto’s market has not discouraged one banking group from speaking up.


In a GTA housing analysis report by Benjamin Tal of CIBC, predictions and pursuits of new policies to tax overseas buyers in anticipation of foreign investment in GTA housing are still probable and may come to pass. Targeting foreign buyers may not do much to lower housing prices — a reality that Vancouverites are coming to terms with lately — but policies to lower their influence are brewing.


Tal estimates that only 5% of real estate purchases directly affect and are transactional in the GTA, but at the same time, these purchases are not trivial and require some form of regulation.


In the report, the chief economist of the bank states that the financial group is in support of an empty unit tax, a flipping (“speculation”) tax, increasing the land transfer tax, and imposing a limit on foreign buyers’ access to the market overall throughout the GTA.


The report did not discuss Ontario-wide effects of what an amendment to the property transfer tax could result in, and perhaps for a good reason: a province-wide tax on foreign buyers may be more of a con than a pro to the economy.


Dr. Kesselman notes that while “gauging what a particular foreign investor tax might look like in Ontario is mildly difficult, implementing it may not be great policy for the entire province, or even nationally, because hotspots like Vancouver and Toronto already exist. That’s where the demand is concentrated.


“There’s no real evidence for a provincial [foreign investor] tax working in 2nd or 3rd-order cities and areas within Ontario.”


What the tax may (or may not) mean for those interested in renting or buying a home

Knowing how the Vancouver market is dealing with the tax would be ideally a bonus for policy development in Toronto, yet everyday consumers seek simple truths on the house-buying front.


So many viewpoints on such a sensitive topic leaves prospective local and foreign home buyers desiring a home wondering whether the effects of current and future tax policies could be long or short term — and why all property investors, despite immigration status, aren’t taxed this additional rate — and more — given the competitive market.


To this point, Kesselman further explains that a tax on general second property owners can always be circumvented by foreign speculators through proxy buyers (relatives) and/or leave domestic buyers subject to a capital gains tax.


Moreover, “the process isn’t documented or monitored well by tax bodies, so to even say if a general property investor tax would be effective is difficult.”


Going forward to purchase one’s first home, however, may not be so difficult.


Both Tal and Kesselman forecast that any new and upcoming taxes, whether pursued in Toronto or Vancouver will help “dampen prices in the [larger city] market, but won’t substantially decrease prices overall”(Kesselman) as well as open up the rental market to availability, helping home-owning hopefuls currently renting to either begin house shopping, or continue saving towards a down payment.


What remains certain and important is that the taxes remain fair to both sides of the buyers’ market and only time can reveal that aspect.


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A Maryland native and Toronto-area transplant/graduate of the University of Toronto, Christine is a content writer at Loanerr. When not writing articles, she's an avid swimmer, cat lover, violinist in a indie band, and a humble food aficionada.