The Government of British Columbia is taking action to slow the flow of foreign money into Vancouver’s real estate market by adding a 15% tax on homes purchased by foreign nationals.
The new rules announced earlier today will apply to properties purchased in Metro Vancouver after August 2nd. The 15% tax will apply only to foreign nationals and will be charged over and above the existing B.C. land transfer tax.
In the City of Vancouver a Canadian citizen currently stands to pay $18,524 in land transfer tax on the average home price of $1,026,207 – roughly 1.8 per cent. Under the new rules, a non-Canadian would pay an additional 15% tax of $153,931, for a total tax of $172,455.
According to the B.C. government, the move is necessary to make owning a home more affordable for the middle class and to keep rents within reach for those who can’t afford (or don’t want) to buy. According to B.C.’s Finance Minister Mike de Jong, foreign nationals spent over $1-billion on real estate in the province in just over a month between June 10th and July 14th. Taking away a large portion of that capital will, in theory, reduce competition for locals who just need a place to live.
Foreign investment has been blamed by many for the run-up in Vancouver real estate prices over the last several years, but the extent of its impact has been unclear. Land use restrictions and low mortgage rates could also be helping keep prices high in Vancouver and in Canada’s other runaway housing market, Toronto.
Of all the government intervention in the housing market in recent years, this move is by far the most severe. Until now policy changes at the federal level have taken baby steps toward cooling the housing market, mostly by limiting amortization rates and increasing minimum down payments. Ottawa has also been taking steps to shift more of the risks associated with mortgage lending away from the public and onto the banks.
What’s not yet known is how the rules will be enforced or what proof of citizenship will be required. People with landed immigrant or permanent resident status will also be waiting to see how the legislation will affect their prospects of homeownership.
Another unintended consequence of the added tax could be a run up in property values in other markets across Canada as foreign investors look for less costly options. In B.C., Victoria and Kelowna have already felt the halo effect from the hot Vancouver market, and the properties that make up the urban sprawl of Ontario’s Greater Toronto and Hamilton Area (GTHA) could suddenly become a lot more popular.
Still, many Vancouver residents who have watched property values skyrocket will be eager to see the results of the new tax. With the new rules set to come into effect in a matter of days, it won’t be long until we see whether this latest government intervention will finally bring Vancouver’s housing market back under control.
Update: Permanent residents will be able to buy properties in Metro Vancouver without paying the additional tax but landed immigrants and other people who don’t enjoy citizenship or permanent residency will be out of luck.