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Kelowna  

Foreign tax Kelowna curse?

Will a new tax imposed on foreign property purchasers in Vancouver cause housing prices in Kelowna and the Okanagan to skyrocket?

It could according to Tom Davidoff, an associate professor at UBC's Sauder School of Business.

The province has brought in a 15 per cent property transfer tax on all foreign real estate buyers.

The measures only affect real estate purchases in Vancouver, where foreign investors have helped make Vancouver real estate the most expensive in Canada.

The new tax comes into effect next Tuesday.

At 15 per cent on some pretty expensive, multi-million dollar properties, Davidoff said the tax can be pretty onerous.

Some investors, said Davidoff, may look at alternatives.

One of those would be to involve friends or family members already living in Vancouver as either citizens or permanent residents.

"Play number two is, 'I still want to invest in B.C.,' now Victoria and Kelowna are really looking cheap because they don't have this 15 per cent tax," said Davidoff.

"I want to be in B.C. so, forget it, I will go to Kelowna, or Victoria."

Even if that is the case, Davidoff said it's unclear whether that will lead to an increase in property values.

A third scenario, Vancouver or bust, could actually lead to a decrease in prices.

"It's somewhat complicated, but my guess is on balance, the net effect is to raise prices in other major markets in the province, but it's not totally clear."

According to Finance Minister Mike de Jong, 86 per cent of the more than $1 billion spent by foreign buyers in the province over a six-week period ending in mid-July was purchased in Metro Vancouver.

He added a similar tax in other countries have resulted in a levelling of the market.

Davidoff said he's not saying for a moment the tax is a bad idea. In fact, he said it could work out to be a brilliant concept if foreign owners continue to do what they have been doing and pay the tax.

That's the best case scenario, he said.

"And, why not spread this around the province. Vancouver getting choked on the demand, it's unaffordable for working people.

"If you can spread the benefit of foreign investment to areas that are better able to absorb that, I wouldn't call that a bug, I would call that a feature."

Davidoff said the one problem could be a 15 per cent tax in Vancouver and nothing anywhere else in the province.

Maybe, he said, it should have been 15 per cent in Vancouver and maybe four per cent everywhere else.

"The question is are there any foreign buyers going anywhere else in the province. I expect the answer is yes."

Davidoff said things will become more clear over time. The province has promised monthly updates on foreign real estate investment in the province.

In a non-scientific poll, 83 per cent of respondents said foreign home buyers in the Okanagan should also pay an additional tax.

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