Vancouver’s Foreign Buyers Tax – Our Thoughts & Predictions
After being rumoured throughout the West Coast of Canada for a number of months, the Vancouver Foreign buyers tax was ultimately implemented by the British Columbia government on August 2nd of 2016. The hefty foreign buyer’s tax, totaling 15% of the purchased home’s value, was implemented due to growing concern over housing affordability in Vancouver. The hope for the tax is to slow down the rapidly growing Vancouver real estate market, which has made local homes unaffordable to average income individuals and families.
About the tax
Many have believed that a significant part of the house affordability problem is coming from the international investments going into the Metro Vancouver real estate market. The tax has had mixed reviews thus far—from foreign and local buyers alike. Some think it’s a great idea that will absolutely help slow down the market, whereas others think that the BC government’s measures are far too extreme, and may not even result in a permanent difference. What will this significant change mean for local and foreign buyers and owners? Will the tax make a difference for other locations in Canada? Keep on reading to discover our thoughts, opinions, and future predictions on the Vancouver foreign buyers tax.
Too easily avoidable?
Just like those involved the classic “Closet Tax” ‘tale’, it’s possible that buyers are going to try to find creative ways out of paying this heavy tax. Unfortunately for the government, these ways can be quite easy to find. One of our top predictions is that “residency farmers” will begin forming as a result. Since this tax creates an obvious value-added activity to anyone who has permanent residency, and there is no tax for those who buy more than one house, this doesn’t prevent locals from owning multiple houses, and using their residency to act as a proxy for foreign buyers.
We also wouldn’t discount the possibility that buyers may have friends & family with residency who would be willing to buy for them, and work out the finances personally.
Other reasons for buying in Vancouver
The truth is that the foreign buyer’s tax in Vancouver simply won’t make a difference to suppress the other reasons why people are lining up to buy in the area. There is an attraction to Vancouver that reaches a global scale, ultimately attracting more and more foreign buyers to the location. The foreign buyer’s tax discounts other reasons why foreign buyers are so attracted to the city: It’s an attractive place to live. It’s difficult to resist the call for beautiful weather, stunning views, and endless amenities like hiking, skiing, biking, and so on that Vancouver has to offer its residents.
It’s affordable in comparison – compared to places in China (Shanghai, Beijing, and Hong Kong) or alternatives in North America with a similar culture—like San Francisco, Vancouver is actually quite affordable, even with the new 15% tax added to housing prices. Finally, the effective drop in the value of the Canadian Dollar vs. the US Dollar and the yuan make buying in Canada very attractive certain foreign buyers. Cash or high proportion cash purchases for rental type condos still offer an attractive yield, and a fair bit of liquidity can be achieved by borrowing. There could be a significant return achieved if the selling price keeps increasing while the Canadian Dollar is resurgent.
Shifting demand to other locations
When trying to fix a supply problem with a demand solution, the consequence is that it may cause another economic imbalance elsewhere. Vancouver has supply issues related to geography, as so many people want to live in the same exact area. They are simply running out of space for building new residences to meet the significant demand. We believe the foreign buyer’s tax could lead to some form of demand displacement. When it’s possible, some foreign buyers will result to purchasing in areas near the City where they wouldn’t have necessarily bought before. Places nearby, containing relatively similar attractions and culture to Vancouver like Victoria or Vancouver Island are likely to see a surge in buyers due to the tax in the major city. Many have contemplated if the tax will shift demand to similar major cities in Canada like Toronto and Ottawa. This is a possibility, however, we believe the change to Ontario markets will remain relatively steady, and there is unlikely to be a tax implemented in Toronto. Overall, the foreign tax has had a mixed response, though there is no doubt that it will change the market in one way or another. In order to remain informed on real estate market changes, you’ll want an experienced team helping you make the best possible decisions.
Contact MarshallZehr today to get the support you need.