Speculation tax impact

Kelowna real estate developer and founder of Vantage West Realty, AJ Hazzi, has been busy putting out fires ever since the provincial government's recent budget introduced a new speculative housing tax on Kelowna and West Kelowna.

The taxes do not include Vernon or Penticton, in fact, at this point, it stops at Lake Country, on the east side of Okanagan Lake, and encompasses the city limits of West Kelowna.

But even realtors aren't certain of the precise boundaries.

Okanagan residents and Albertans, in particular, are impacted by the province's existing foreign-buyers tax, which will rise from 15 per cent to 20 per cent.

The tax equals 0.5 per cent of the assessed value of a home in 2018, and two per cent in the following years.

The new speculation tax is expected to kick in next fall and is designed to target property buyers who don’t pay income tax in British Columbia.

Property owners like Jim Daynard, who plans to sell his lakefront property in the spring, says he's worried he won't be able to.

"This was my dream to have a place on the lake and the government is screwing it up," he says. 

Daynard says his neighbour is from Alberta and may have to sell his lakefront property, "if he gets taxed it could cost him $30 to $ 40 thousand dollars and he can't afford that."

Finance Minister Carole James said in her budget speech that the province will start tracking information on pre-sales, but that will be kept confidential for now.

She did not introduce any measures to change the rules for pre-sales.

Developers and real estate experts in the Okanagan worry the new taxes could impact the building and sales of recreational and second homes for people outside of the province.

Hazzi says it's important to put the tax in the proper perspective.

"One thing to keep in mind is that only 20 per cent of real estate transactions in the valley happen with buyers from outside of British Columbia. Of that 20 per cent, how many of them have the intention to buy a property and leave it empty? The answer is a pretty small number; not that many people leave their properties empty in the valley."

"A simple option to get around paying the bigger tax is to hire a property management company and put a tenant in the house for the part of the year they are not occupying the residence and they would be exempt from that."

The speculation tax is there to catch those property owners who buy property as a speculative investment and have no intention of occupying the property.

Hazzi says he believes that's only about five to six per cent of the market.

"Even if those homes came back on the market we have such low supply right now it wouldn't be enough to send the market into a downward tailspin."
Hazzi says this is a very politically charged issue.

"The politicians are trying to put their cape on and pretend like that they are doing something for affordable housing," he says.

Hazzi thinks it could actually have the opposite effect over time by taking away the incentive to buy rental properties, which could shrink supply even further and force rents upward.

Most developers agree steps need to be taken so the valley market is inclusive of all walks of life but, "the free market is always the better way to go." according to Hazzi, "it'll work itself out better."

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