Madame Machiavelli, aka Premier Christy Clark, has done it again. After years of stating there was no problem she made a volte-face in the Legislature yesterday with a bill to level a 15% tax on foreign buyers of properties in Metro Vancouver which has blown up the real estate market. John Horgan, leader of the Opposition was quoted in the Sun as saying
we know it’s the summer session because its flip-flop season here with the BC Liberals.
We have stated many times in our commentaries that the entire raison d’etre of the Christy Clark government is to fill the provincial coffers and to get re-elected. As there is an election on May 19, 2017 and the public disaffection of the "don’t rock the boat" Liberal policies was becoming overt something big was required to get the public’s attention. First they announced that the problems were caused by the real estate industry and their own enforcement entity the Real Estate Council would be stripped of its power and be supervised directly by the government. When that didn’t work they announced that they would amend the Vancouver Charter to allow taxation of vacant homes. When that still didn’t change the public unhappiness with affordability issues perceived to be aggravated by foreign buyers the boom was lowered on foreign buyers who do not vote in the BC election. Buyers who do not have Permanent Resident status or Canadian citizenship will be required to pay 15% tax on the purchase price of a house or condo in Metro Vancouver.
Coal Harbour Skyline by Nick Watkins
The new legislation goes into effect on August 2nd, following the August 1st holiday in BC. The Real Estate Board of Greater Vancouver stated that there had been no consultation with the industry to discover how property was conveyed and the lead time required to find thousands of extra dollars to pay a 15% tax on top of the existing Property Transfer Tax paid by all buyers. Lawyers we know are being notified that buyers in their conveyancing files are not going to close. These are buyers who mainly do not reside in Canada and cannot be sued for non-performance of the Contract of Purchase and Sale. There is a huge scramble for those who plan to close to get the conveyancing docs ready by Friday, July 29th so they don’t have to pay the new tax.
A really big problem is that many sellers who sold their homes in good faith with a solid deposit and an enforceable Contract of Purchase and Sale to buyers who said they lived in Canada were confident that it was safe to purchase a new home to close after they received funds from their sale. There will be a domino effect on pending sales not completing. The deposit required in a contract is usually 5% of the purchase price for local buyers (hence the lies about resident status) and 10% for offshore buyers. Forfeiting the deposit is still a lower penalty than paying the tax. Sellers are left with properties that will be difficult to sell in the short term to close on their new contractual obligation.
- 1% on the first $200,000, and
- 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, and
- 3% on the portion of the fair market value greater than $2,000,000.
An example of the costs of the new tax courtesy of the Vancouver Sun are listed below:
|Tax paid by local buyer
|Tax paid by foreign buyer
The terms of the legislation are far-reaching and are contained in an omnibus bill of real estate changes that everyone approves of such as re-regulating the industry, allowing Vancouver to tax vacant homes. The government has permission to increase the tax rate to 20% at their discretion and to use the funds raised to support housing initiatives and programs that suit them. They can extend the tax beyond Metro Vancouver to any part of the province without consulting the Legislature.
The idea behind the legislation was to provide public relief and a fund to work on housing affordability. The one thing it does not address is supply. They are cooling the demand but haven’t yet increased the supply and any initiative however well-funded is up against rampant NIMBYism across Metro Vancouver.
NIMBY, an acronym for “Not In My Backyard”, is someone who holds out against undesired development in their neighbourhood. This goes for any kind of construction ranging from factories, power plants to office buildings.
The idea of cooling foreign buyers and speculation is trending around the world. Hong Kong added a 15% foreign buyer tax in 2012; Singapore has a 15% tax; Australia, Denmark, Switzerland, London all have restrictive rules for foreign buyers of their real estate.