Housing tax worries market

Economists, realtors, sellers and buyers are all wondering how the Canadian housing market will be affected by the Vancouver property transfer tax for foreign buyers.

At the beginning of August, the B.C. government introduced an additional 15 per cent property transfer tax on home buyers in the Metro Vancouver area.

Canadians and permanent residents of Canada are not subject to the extra tax and B.C. properties outside the Vancouver area are exempt.

This is the first time a tax on foreign home buyers has been introduced in Canada and it is still not clear how the rest of the country will be affected.

Foreign buyers could decide to buy properties in parts of B.C. not subject to the tax, such as Victoria, Kelowna or they may decide to invest their money in Toronto, further overheating the market there.

According to Brad Henderson, president and CEO of Sotheby's International Realty Canada, Toronto and potentially other cities such as Montreal will become more attractive because, in comparison, they will be less expensive.

"At the end of the day, the impact of the tax on foreign housing purchased in Vancouver remains to be seen,” says Jeremy Kronick, senior policy analyst at the C.D. Howe Institute, in a recent Globe and Mail article.

“Perhaps it will work out exactly as planned in that city.  However, what is playing out in Vancouver could well have unintended consequences across the country.”

Here are some highlights from Michael Campbell, our own economic consultant at Verico.

• "So the question is, will adding $600,000 into the purchase of a $4 million home or putting an additional $1.5 million on a $10 million dollar home be enough to discourage foreign buyers and send capital elsewhere? 
• “At this point we can only guess. But Toronto, Victoria, even Nanaimo, could be beneficiaries if foreign investors turn their attention elsewhere."

The Bank of Canada, The OED and CMHC are all worried about a property bubble while the municipal and provincial government seem determined to pop it.

The buyers who want lower prices ought to be wary of what the wish for. History has shown that sharp price drops as opposed to high prices in real estate can cause serious problems for the economy and financial system.

As for affordability, record low interest rates and massive in migration from other parts of Canada and Internationally are still likely to cause increased demand which will exceed supply.

For further information about this tax or purchasing a property, please call 250-862-1806 or email me.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.