B.C.’s Isolationist Tax



Protecting housing smThe B.C. government’s “blame non-resident homeowners” campaign is now officially out of control.

Provincial leaders have just molested international homebuyers with a savage 15% land transfer tax. Worse, and incomprehensibly, they’ve applied it retroactively and with no compunction to purchasers already locked into contracts, people with no other way out besides losing their deposit. This is how the premier wants B.C. to be judged by those outside our borders.

Of course, there are other countries with protectionist real estate practices. But there are also other countries that levy 80% marginal tax rates and jail women because they forgot their burkas. Taking cues from other nations is not, by default, sound.

Given the knee-jerk nature of this tax (the market got all of eight days’ notice to prepare for it), one wonders if B.C.’s premier ever pondered its hypocrisy.

Yesterday I asked a personal finance “guru,” who shall remain nameless thanks to her vulgar response, whether the U.S. should retaliate and force onerous taxes on Canadian snowbirds. It’s a legitimate question.

Those who exclaim, “Yes! Protect hapless local Americans from marauding Canadian purchasers,” should think about that response for a moment. For if Canada snubs international buyers, we can’t argue against the same treatment for Canadians abroad. We have no basis to complain if other countries erect tax fences to shut our people out.

As important as it may be to stabilize home values, before exhausting other options and branding ourselves real estate protectionists, important questions should be considered:

  • How would we feel if the Americans slapped a demoralizing new retroactive tax on the half-million+ Canadians who own down south, and the millions more that will someday buy there?
  • How just is it for officials in Florida or Arizona or California to disadvantage and displace Canadians so locals enjoy cheaper homes?
  • How wise is it to discourage global investment in a country like ours, with its insufficiently diversified economy, and whose outlook deteriorates every time commodity prices drop 10%? (Note that many international investors and their executives, who invest and work in Canada, need second homes here.)
  • How much should pandering politicians put equity at risk for the 70% of Canadians who own homes, and the one in four seniors who depend primarily on home equity for survival?
  • Given the myriad of supply/demand factors driving home prices, to what extent does legal foreign buying (which likely accounts for just 1 out of 20 purchases long-term, most being high-end properties) really push up prices for working-class Vancouverites?

A key word there is “legal.” Fraudsters, money launderers and other criminal buyers must be chased down, fined, spend time in a 6’x9′ box and/or have their properties confiscated. 

By contrast, overseas buyers who respect our rules and buy a second home here should be welcomed with wide open arms, for their diversity, capital and contributions can be a net benefit to this great country. In so many cases they invest here, spend here, help fund the educational system here and support Canadian jobs here (and let’s not let student mansion owners distract from that message).

In cases where non-residents leave “affordable housing” vacant and don’t invest in and foster employment, perhaps that specific practice should be discouraged. But how short-sighted it is to lump all non-nationals into that same boat. 

At first blush, most people support higher taxes on Chinese, Korean, U.S., UK, Indian, Taiwanese and other non-Canadian buyers, and you can understand why. People are frustrated. They love Vancouver and they want a comfortable, affordable place to live in or near the city.

Heck, my wife and I lived in Vancouver for five years and we often wished we had enough money to buy a nice house near our workplace. But clearly, owning in a beautiful high-demand area in one of the world’s greatest cities was not our God-given right. Nor is it anyone’s.

Sometimes people who can’t afford something have to make hard decisions, like commuting an extra 45 minutes, changing jobs, living in a condo, migrating or otherwise improving their lot in life.

Without fail, however, both people and economies ultimately adapt to affordability challenges. But it takes forethought and time, and politicians focused on upcoming elections don’t feel they have that time. So we get short-term mindsets creating long-term policy—a bona fide travesty.

B.C.’s new land tax reeks of hypocrisy. If this country’s leaders want to be open members of the global community, and benefit from international trade, and protect our ownership privileges abroad, and attract foreign investment, we simply cannot send a message to non-Canadians that they’re less valuable to our society than we are. 


The views and opinions expressed herein are solely the views and expressions of the author and/or contributors to this site and do not necessarily represent the views of Mortgage Professionals Canada, or its advertisers or stakeholders.

Related Posts

Comments

  1. Comment avatar

    Local    

    I highly doubt this tax will kill the industry – it may slow it down a little but it won’t kill it. In fact, it may well fuel increases in areas outside metro Vancovuer boundaries. The tax only applies to Vancouver and a mere half hour drive away there are plenty of opportunities for tax-free foreign investment so I don’t see a problem with this. Vancouver is out of control, largely fuelled by shady realtors and foreign investors in what is at least an abuse of the system and smacking more and more of a systemic money laundering scheme.

    I have no sympathy for snowbirds or for foreign investers with deep pockets. If you can drop $5M on a teardown bungalow and leave it sit vacant indefinately, you can afford a 15% surcharge.

    However, I do not agree with the government’s implementation with no notice. Those who have signed contracts with all subjects removed should’ve been allowed to close without penalty. This can literally result in financial ruin for some people – particularly on the entry level, through no fault of their own and that is morally wrong. Hopefully the government reconsiders this and allows existing contracts to close without the additional tax.

     
    1. Robert McLister    

      “largely fuelled by shady realtors and foreign investors in what is at least an abuse of the system and smacking more and more of a systemic money laundering scheme.”

      Local, Let’s sidestep the word “largely” because there isn’t enough data to define it. For people who break the law, let’s stamp that out harshly and without hesitation. But honest foreign buyers don’t deserve to be lumped into that category. I understand if you don’t have sympathy for hard-working Canadians who have retirement assets tied up in foreign property, but the point remains. None of us would want to be treated as second-class citizens, and no lawfully admitted human being in this country deserves to be.

      Glad we agree on the last point. Cheers…

       
      Comment avatar
      1. Comment avatar

        Whistler    

        Small edit, but I think you mean “second-class non-citizens”.

        When there is a complete dearth of regulation/enforcement at the national level by CRA, FINTRAC and OSFI, provinces/municipalities have to step in and come up with their own solutions. This tax (and its implementation) does seem “hacky”, but clearly there is no quick help coming from the federal level. The only way to prevent a further run-up in prices was to enact the tax quickly, of course catching every stakeholder off-guard. The abruptness of the announcement coupled with a very idiotic decision not to grandfather prior contacts has a real potential for contagion.

        A politician’s job is to politic, and there’s no doubt that most Vancouverites will support this legislation until it bites them.

        It is a gambit, but so is inaction.

         
        1. Robert McLister    

          Hi Whistler, Yeah, figurative and literal speech sometimes collide. But now I’m curious who the first-class non-citizens are.

          Re: “The only way to prevent a further run-up in prices was to enact the tax quickly.”
          GVA detached prices are 69% higher than 36 months ago. Maybe Clark & co. could have used some of the last three years to ponder rational solutions. Since proactivity is overrated, however, at the very least they had falling prices to buy some time.

          Re: The job description of politicians: Pretty sure that legislating by popularity is not in the Great Leaders’ Handbook. I’ll double-check that.

           
          Comment avatar
  2. Comment avatar

    Tomas    

    Lets wait and see how much tax revenues this generates, and how real estate sales are affected before we get carried away?

    It’s just a law. A law which can be changed or eliminated in 1 min and a rubber stamp vote.

     
    1. Robert McLister    

      Hi Tomas, Here’s the thing. Lawmaking isn’t trial and error. Politician aren’t paid to shoot first and assess the damage later. Policy this impactful demands judicious forethought, which was clearly missing by virtue of its retroactively. And tax laws aren’t so easy to change, not when governments get addicted to the revenue. The GST is a case study on that.

       
      Comment avatar
      1. Comment avatar

        Tomas    

        “Judicious forethought”

        Sure, and I wish the workplace was a 100% meritocracy.

        Snarkiness aside, your preference would have been to do academic studies and consult with biased stakeholders?

        That would take how long? A year? Wouldn’t it be easier to try it for a year? Businesses pilot things all the time, it shows commitment, zeal and conviction to put an idea into play.

        Judicious forethought is just an excuse to maintain the status quo — the dreaded inertia.

        This tax won’t generate anything material in NET revenues anyways…it will go away.

         
  3. Comment avatar

    Peter Dale    

    Can anyone spell e-l-e-c-t-i-o-n?

     
  4. Comment avatar

    Jeremy Nagel    

    Great post, Rob! I too share your sentiments.

     
  5. Comment avatar

    YVR    

    Air China passengers, your flight is now boarding.

     
  6. Comment avatar

    Ron Butler    

    Rob tells it straight: if you want fairness, act fairly. How in the world can any government apply a tax retroactively? That’s what happened here folks, buyers chose homes without the tax and magically when it comes time to close there suddenly is a tax.. To Rob’s point how would you feel if it happened to you? Jurisdictions do have the right to enact laws that restrict home purchase. Nevada noticed that thousands of properties in Vegas were being bought up by foreign nationals in 2010 and they ended up restricting the purchases to one house per foreign family. So governments do have a right to intervene but the policy has to be well thought out and ultimately it MUST be fair.

     
  7. Comment avatar

    Mary L    

    The author needs to do further research. The article reads like an emotional knee-jerk rather than a reasoned work. Many countries apply much more onerous taxes on foreign real estate buyers,such taxes are far from unusual. The “snowbirds” example is not applicable – the difference is as to the degree of impact on the local market. If “snowbirds” had a a significant impact on the locals, you can bet their would be a change in the laws very quickly. It would be interesting to know the discussion surrounding the reason for the short notice of the law; perhaps the author should refers to sources such as legislative debates to assess any justifications provided. This article may be a starting point but it needs to be fact-based and reasoned to be informative and promote useful discussion.

     
    1. Robert McLister    

      Hey there Mary, You got it. It’s emotional to watch Canada’s long-term interests sacrificed on the political altar. As the story implies, the manner that Hong Kong, Singapore and Australia treat international buyers is not the litmus test for tax suitability. You could reel off many more jurisdictions — not the least of which is Manhattan with its far greater price/square foot — that are wise enough not to jeopardize their global standing. As for snowbirds, yes, let’s talk facts. 1/3 of Florida’s foreign purchasers are Canadians. Multiple Florida municipalities have over 10% concentrations of Canadian owners. Yet, we don’t see Floridians telling Canadians to F-off, despite it being the 8th most densely populated state in the U.S. with some of the highest real estate demand. So forgive me for not taking your bet.

       
      Comment avatar
  8. Comment avatar

    Garden Lady    

    Interesting… the big brokers making the big bucks are a little touchy on this subject 🙂

     
    1. Reed Harris    

      Most brokers don’t deal with foreign nationals, they are very difficult to get financing for actually. Most lending through the branch level at the Big 5, where they can make up the lending policies as they go along…

       
      Comment avatar
  9. Comment avatar

    Reasonfirst    

    Standing on principle I think you are correct but I think you are on the wrong side of the public here.

    PS – personally, I couldn’t give a ^$^% about Canadians buying in Florida etc. and global investment is good for productive businesses – for accelerating home prices – not so much.

     
    1. Robert McLister    

      Thanks RF, If I remember correctly, the majority once thought the earth was flat.

       
      Comment avatar
      1. Comment avatar

        Tomas    

        Foreign students pay a lot more for college and university tuition. Hospital stay would be much pricier too.

        Any objection to those?

        How are they different than taxing a property purchase?

         
  10. Comment avatar

    would-be buyer    

    I really enjoyed visiting this site to get “the other side’s” views on real estate news and financing. However, your post is way over the top, hyperbolic and out of touch with what is happening in Vancouver real estate. The “financial guru” you mentioned had a valid point and I respect her opinion. I’m sad to see her retire as she offered basic financial literacy to the masses. This is sorrily missing right now in Vancouver where people are acting stupid – FOMO – and enslaving themselves to massive debt to compete with off-shore money. This will end badly for Vancouverites and Canadians in general when the reset begins. Now the CMHC is issuing warnings. Sadly, I will no longer be visiting this site as it has nothing to offer me. You need to gain some perspective on this matter.

     
    1. Robert McLister    

      Hey WBB, An over-the-top post for an over-the-top policy. Kinda fitting. But seriously, you’re right and I’m wrong. That’s now clear thanks to the copious evidence in your post. Sorry to see you go…happy trails.

       
      Comment avatar
  11. Comment avatar

    LT    

    Very well written post Rob. On one hand B.C. felt the importance of stabilizing prices so their economy wouldn’t spiral out of control. However, to implement such a savage tax on 8 days notice and apply it retroactively is frankly ludicrous. Canada’s economy is booming thanks to the foreign investments and rising home prices in the two major metropolis cities, Van City and Toronto/GTA. It creates job opportunities in all fields incl. construction, finance, marketing, auto sales, etc. and trickles down to hundreds of fields. Canada is known for it’s stable governmental policies and currently booming economy. In my opinion, this a pure cash-grab opportunity for B.C. and will deter foreign investors from future dealings within Canada.

     
  12. Comment avatar

    Daniel abraham    

    I live in the Kootenays and am thrilled that policy may push investment out of the lower mainland and into the interior. Kelowna might see a bump, and Realtors here have already been taking Chinese investors on tour, whereas last year there was nothing of the sort going on. Bring the bounty inland!

     
  13. Comment avatar

    Concerned reader    

    While the author is certainly entitled to his own opinion, I do take issue with the words “molested” and “vulgar” being used disproportionately. As a CAAMP owned website, any offensive language and politically or emotionally charged opinions just should not be presented here, as a broker endorsed platform.

    It does sound like the implementation of the policy is unfair, but the policy itself should not come as too much of a surprise. Similar policies exist in other countries (that do not “jail women who forgot their burkas”) and the national and local governments have issued many warnings. Finally, there is a fundamental problem when residents of a country cannot afford to live in their own city and local incomes do not support housing prices. Even the market in Toronto is completely different. It is a financial capital with healthy migration to the city and supply and demand fundamentals supporting pricing.

    Regardless if the author agrees with my last point here, at least is has been presented in a respectful manner. The only thing vulgar in this post was the use of language.

     
    1. Robert McLister    

      I love the mortgage brokerage industry and the money it saves Canadian families, but I don’t purport to speak for brokers or MPC (it’s no longer CAAMP BTW). Note the same in our disclaimer.

      It’s always easier to attack language than arguments. Taking issue with the colour of paint on this author’s canvas won’t divert anyone from the disgraceful inequity of B.C.’s new “stay out” tax.

      The less than 1 in 20 buyers who are non-residents and who purchase at the high end of the market are not a primary cause of Vancouver’s low- and middle-class unaffordability issue. That issue is overwhelmingly a product of domestic demand. That is rate-driven, income-driven, immigration-driven, population-driven, urbanization-driven, scenic-beauty-driven, climate-driven and employment-driven demand for an highly desirable tiny sliver of geography.

      If you want to help affordability, here’s a three-step plan:

      1) Drain the ocean, strip the trees and level the mountains.
      2) Stop Vancouver from creating jobs that attract people like moths to light.
      3) Convince your fellow Canadians to move east.

      Alternatively, improve public transportation, incentivize densification, recognize that Vancouver will never truly be “affordable” (barring natural disaster or thermonuclear war) and raise incomes.

      The income idea, by the way, will increasingly depend on international investment creating Canadian jobs. Unfortunately, that’s now a tougher ask from B.C.’s second-biggest trading partner (China) when its citizens read this in the South China Morning Post: “…[British Columbia’s] move raises questions about the reliability of government policy for all investors, regardless of the asset.”

       
      Comment avatar
      1. Comment avatar

        Local    

        “1 in 20 buyers who are non-resident”…

        Over the entire lower mainland that may hold some truth but you are not taking into consideration that in many areas non-resident buyers/owners represents 60-70-80 percent of stock. West Vancouver and Coal Harbor are good examples. Properties sit vacant – acting as bank accounts for offshore interests that contribute absolutely nothing to the local economy; they do not spend money in the community, they are NOT employers creating local jobs; they do not pay Canadian income tax. A few peripheral players such as realtors and brokers benefit from this type of investment; but the community as a whole does not. If vacant properties were occupied by local TAXPAYERS either via rental or sale, the backlog of 65K building permits currently sitting at city hall (the ones that developers and realtors keep whining on about) would essentially vanish The local job market in Vancouver is not fueling pricing or demand. If anything, median prices in Vancouver are making it very challenging for employers to fill positions because people simply cannot afford to live near their work. What level of salary is required to pay $2000-$3500 rent? And expecting small business or even medium sized employers to raise salaries to a level that would make it feasible for an employee to qualify for a $750K-$1M mortgage to even just get in at an ENTRY-LEVEL into the housing market is not being very realistic. Commuting can easily add an additional $1000-$1500/month – financially it is paralyzing.

         
        1. Robert McLister    

          Hi Local, Some good talking points here, thank you.

          Let’s start with the examples of West Vancouver and Coal Harbour, which are among the most desirable and in-demand neighborhoods in Canada. Were foreign buyers absent, homes in these locations would still be stratospherically above the median Canadian home price simply because so many Canadians want to live there.

          Arguing for more affordable housing in West Vancouver and Coal Harbour is like arguing for more affordable housing in Beverly Hills. The majority of society simply doesn’t have the means to live there, and never will, and never should be expected to in a market economy.

          Even in communist China with its working class ideology, they’ve lifted most restrictions on foreigner buying. You don’t see the “people’s” state promoting affordable housing in exclusive neighbourhoods like Chaoyang and the like. Ultimately, the greatest cities are international cities and not everyone can live at the highest standard of living.

          Absentee foreign owners are another ball of wax. Could you please share your data on how many non-resident foreign owners there are, as a percentage of all owners—specifically foreign owners who “contribute absolutely nothing to the local economy; do not spend money in the community, are not employers creating local jobs; and do not pay Canadian income tax?” And could you please share your research on the opposite, foreign owners who do contribute to society? And what arbitrary definition of “contribute” should be used? And how should we apply it to Canadians who own abroad? And since when did paying income taxes become a requisite for owning in Canada? Should the hundreds of thousands of Canadians who own abroad pay foreign income taxes—in addition to Canadian taxes—and have their standard of living lowered?

          Then there’s the vacant home issue. If we turn those empty homes into rentals, what rent do you think a nice $4 million West Vancouver home would fetch? Do you think the average Canadian will be able to pay it? Alas, this too is not a strategy for creating “affordable” housing in desirable neighbourhoods.

          There’s so much more being ignored in this protectionist emotional anti-foreigner debate. One is when Canadians sell to foreigners and reap massive windfall profits. That money stays in Canada. This very thing happened to a family member who sold his home for $300,000 over asking two days after listing (to a mainland Chinese buyer). He then moved from Toronto to a small Ontario city where his house is half the price, and now he can invest his windfall in that local economy, which desperately needs his spending far more than Vancouver does.

          Regarding jobs not helping to fuel housing demand, check your facts. Vancouver is Canada’s “job-creation capital.” More on that: http://www.theglobeandmail.com/report-on-business/top-business-stories/vancouver-canadas-gorgeous-frothy-jobs-magnet-phenomenon/article30848579/

          For Vancouver employers to attract talent, their wages must be commensurate with the cost of living. And no, they don’t need to be high enough for employees to live downtown. I live almost an hour away from my workplace, as do 1 in 6 Canadians. No one has a God-given “right to proximity” and public transportation is not the scourge of society.

          While I understand the emotion around this debate, I have yet to see an anti-foreign-buyer argument that is sound enough, empirically, economically or socially, to justify building discriminatory walls around our cities.

           
          Comment avatar
        2. Local    

          Robert, is your position then that foreign ownership has had no influence/impact on the housing prices in greater Vancouver? Or that affordability and availability of housing in the metro region has not been impacted by foreign ownership? Are you saying that we would be in EXACTLY the same position right now with or without foreign ownership?

          If so, I respectfully disagree. The surge in housing prices in Vancouver is completely out of line with the economic growth within the region. Exponentially. Job demand is NOT the primary influencer of this surge.

          I see absolutely nothing wrong with this tax. Plenty of nations have something of this nature and for good reason. It’s not discriminatory – it is simply the price of doing business. People will pay it – some will belly-ache for a little while but in the end they will pay it because by all measures, Canada is still one hell of a bargain compared to the rest of the world.

           
          Comment avatar
        3. Robert McLister    

          Hi Local, No, that’s not the position here. Offshore buying is clearly influencing home prices on the upper end. But the public outcry centres on affordability and the average Joe can’t afford a $1+ million property to begin with. There is scant evidence that non-resident buyers are drastically jacking up prices on the low-end, such that average Canadians can’t afford to live in the region at all. As for fundamentals, traditional valuation metrics (like price-to-income, etc.) will never fully explain Vancouver home prices because demand isn’t coming from just ordinary Canadians. On that last point, yes, some non-res buyers will still buy and pay the tax. But many won’t. Anti-foreigner sentiment and tax disincentives (especially if they spread to Ontario) have a range of potential side effects, including but not limited to jeopardizing equity for countless existing homeowners, tapering global investment—which Canada desperately needs, adverse wealth effects and so on. Regardless of whether one loves this tax or not, we all have to scratch below the surface and analyze its by-products.

           
          Comment avatar
        4. Local    

          Robert – good discussion. You raise many valid points as well. However, I think there has been more than a few examples of foreign buyers purchasing multiples of new condo pre-sales; in some instances developments have been exclusively marketed and sold out to foreign buyers. This is a prime example of sub $1M real estate that isn’t going to the average Joe. The average Joe isn’t buying up 8-10 condos, or multiple housing lots at a time – or paying in cash. There is a reason why certain real estate firms cater only to the Chinese market – I have been to more than a few open houses for condos where the seller rep does not speak English and has absolutely zero interest in wasting their time on me as clearly, I am not their target buyer. As for the tax – how is it really any different from what has been the norm in the educational system for decades – foreign students pay a significantly higher tuition and there’s absolutely no problem filling those seats – why? Because the benefit to them outweighs the cost. I believe the same holds true for real estate.

           
          Comment avatar
  14. Comment avatar

    Get Real    

    Sorry but I don’t see many Chinese nationals buying starter homes. Let’s call this foreigner backlash what it is, racial bigotry at its finest.

     
  15. Comment avatar

    Your Highness    

    All this is to late. 15% is a drop in the bucket for the Chinese.
    They already have their teeth sunk deep into majority ownership
    in this city and this tax is full of loopholes. Complete nonsense.

     
  16. Comment avatar

    Ken Davenport    

    Crazy days. Let me add a few points:

    a) Be careful what you wish for. In both Hong Kong and Singapore foreigner taxes seemed to have worked really well to kill the markets. Singapore just finished its 11th straight negative quarter and Hong Kong is also in a deep slide.

    http://www.bloomberg.com/news/articles/2016-01-12/singapore-home-price-drop-in-2016-might-prompt-reversal-of-curbs

    http://www.scmp.com/news/hong-kong/economy/article/1968697/hong-kong-tycoon-forecasts-further-10pc-drop-property-prices

    b) Supply matters. Building some of these units might have helped.

    http://vancouversun.com/news/local-news/permit-rules-holding-up-69500-housing-units-development-industry

    c) Use what God gives you. This information is a bit dated, but back in 2006 only about 15% of Greater Vancouver’s land was used for housing. 68% was designated recreational, protected watershed, agricultural preserve or undeveloped. Moreover in 2011 only about half of the land in the agriculture preserve was actually being farmed.

    https://patrickjohnstone.ca/2014/08/how-much-road-is-enough.html

    Opening up even a tiny fraction of this protected land for new homes, could likely make a big difference.

     
  17. Comment avatar

    Shawn    

    Some of these posts, wow! Rob has a perfectly valid point, this tax should not have been retroactive as it is not reasonable in the slightest. Rich Chinese are not getting hurt, but working class folks settling into this area sure just received a good kick in the gonads for not having the foresight of seeing this coming a month or maybe even 2 years ago.
    As always Rob, great post.

     
  18. Comment avatar

    Ken Davenport    

    Or consider Tokyo where houses prices have stayed flat for 20 years, mainly cause governments let people build.

    See below link:

    http://marginalrevolution.com/marginalrevolution/2016/08/laissez-faire-in-tokyo.html

     
  19. Comment avatar

    Darren D    

    The heat of this debate is starting to wane a bit but I have a few key issues I would like to raise.

    1.) This tax was not actually applied retroactively and the use of that term is not actually correct.
    2.) The amount of foreign money coming into the system is massive and should not be seen at the 5-10% range we are seeing quoted. That is just the percentage of sales. What should be seen is the percentage of the change in the available market size.

    Firstly on the “retroactive application”. In a contract, it is typical to have various terms which I would call the “Armageddon” clauses. I work very heavily in business contracts for massive deals and am very used to seeing these. These terms cover what would happen if something – – although remote and unforeseen – – were to happen. One of these is changes in tax laws which would apply to the transaction. Clearly, the standard purchase and sale agreement for real estate in the province of B.C. did not (and maybe still does not) contain any change in tax law clauses. What I would expected is that there was a clause that allowed deals to just unwind without penalty for changes in tax laws. Instead – people wrote “risky” contracts. The risk was small and remote but the contracts that were open and not closed were always at risk of a tax law change and not anticipating how that would be addressed is the fault of the industry or lawyers for not contemplating this in the contract drafting. I would expect this would change now (especially in Ontario where there is some expectation of a tax possibly coming in).

    I agree it is totally unfair – it totally sucks – – and it will harm and potentially even bankrupt some people. However – this is not a retroactive tax and referring to it as such – is not correct. It applies at registration – people were given 8 days notice- which was short – but better than none. Deal with it. If you are unhappy – sue your lawyer who did not write this clause into the contract.

    Second – In terms of the amount of foreign capital. One must remember that a real estate market is somewhat of a closed market in terms of the product available to being traded. A sale does not represent a new sale – say – like a new car or TV. It is a measure of the level of trading of the assets. Some new assets are added to the pool over time and some occasionally come out of the pool – but the pool is a slowly growing pool which increases by new home construction (less home demolitions). Thus, when you look at foreign purchase – to the extent that this becomes a property that the foreigner uses or leaves empty, you are actually just reducing the pool of assets available to be used by the local resident. It’s almost like an export of the product away from the market.

    Thus – you need to look not at the percentage of transactions (most of which are trades between existing market participants) but as a percentage of the additions to the pool of assets which are available to be traded. Since the foreign purchase takes product away – the only way to counteract this is through supply. Thus – if you look at the foreign investment as a percentage of new home construction (at the macro level) the amount we are seeing is almost at 100% of new home supply (without even taking into consideration the impact of demolitions). Thus – you are seeing a massive impact from foreign money. If you have any foreign money in a supply constrained market – you will have massive price increases until either supply can match the foreign demand or the demand is curtailed. The government can’t wait for the supply to come on line – partly because they can’t even force it online (ok – we know the approval process is slow – but you can’t tell me that in a falling market – construction would just stop anyway). At least there is a blunt instrument available to kill the demand – – which is what they are doing.

    So in summary – I would not refer to the tax as retroactive. It applies to some contracts which were not completed, but the lack of a clause to get out of the contract in such a situation is the fault of the industry and lawyers who have not contemplated that this could occur. Second – the foreign buyer at the levels currently disclosed by the government is massive. It is like 100% of new home construction. Which basically means that in this supply constrained market you are having an export of 100% of the new supply. That is a massive problem which can’t be fixed unless too – the government got into the home building business.

    Finally – the next step will be the taxing of the vacant homes. I am not sure where it will all land – but if it were to be successful – you would ultimately want to tax any home which is not lived in by a tax-resident of Canada – either on an owner basis or rental basis. Requiring it to be empty 100% for 12 months is plagued with holes which can be easily passed through. However – requiring a tax resident to be the occupier of the house (with limited exceptions) will be the only way to get the housing stock back online. This would even impact anyone (Canadian or not) who has a second home in the city of Vancouver. The city may attempt to tax all these people to sell – – – which would also increase affordability.

    Great blog – – I do think the post by Rob was a bit one-sided – – but at least people should understand that this tax is a massive blunt instrument that will impact the market stability for a while and that the foreign buyer is (was?) a massive factor in the price movements.

     
    1. No Spin    

      Darren D

      You can spin it any way you want but this tax is unquestionably retroactive.

      Websters defines retroactive as “extending in scope or effect to a prior time or to conditions that existed or originated in the past.” The “effect” of this tax clearly applies to conditions (contracts) that existed in the past.

      It is ridiculous to try and blame lawyers for the Christy Clark’s and Michael de Jong’s reckless decision because such a retroactive tax is unjust and unprecedented. It breaks all sorts of international conventions and no one ever expected this from a supposedly “fair” government. This is the kind of thing that happens in places like Venezuela or Russia, not Canada.

      The very spirit of this tax is to take from people who did business in B.C. on the basis of B.C. law at the time. It is appalling that the B.C. liberal government would change the rules of the game on people who already committed to playing on a fair playing field. These families are not all billionaire chinese. Most of them have no way out but to lose their deposits and property or pay the tax.

      Lawyer up B.C.

       
      Comment avatar
      1. Comment avatar

        Darren D    

        I wanted to follow on to say that one problem with the ability to exempt deals in progress is that there would be no way to control or ensure that there was no backdating of contracts to avoid the tax. In my 20+ years of global business experience around the world the one thing that is constant in the world of fraud is that everyone has their price. When we are talking 100,000’s dollars of tax savings at the flick of a pen – by backdating – it would have been extremely easy to find a way to get it done. People are generally honest but paperwork could have just been changed – Fraudulently.

        In the deal world – if Company “A” were to go out and negotiate a deal to buy company “B” for $5 billion. I can bet you there are many clauses in place to will allow the deal to unwind without penalty based on certain items occurring – which are seen as remote but are possible. One of them is always a change in tax law that makes the economics of the deal change significantly. This is done when considering the most fair as well as the most unpredictable jurisdictions alike. One thing I can’t imagine is why when we are talking about people making the biggest financial transaction they will make, that the moment you sign that contract but the deal is not closed – – they sit “exposed” to certain things. It’s like an open trade. There needs to be some way to allow these contracts to just unwind. You can not just trust the “fair” government. Things can change – not often – in fact I would say it’s rare or remote – but you need to cover off all possibilities.

        I agree that the chance of a tax change was likely seen as quite remote – – however – – it would have been best to have had a clause to allow people to unwind without penalty. I am 100% for the transition rules being applied and congratulate the government in standing by in their steadfast implementation. It is a hard thing to do but it is the only way you can implement tax policy. Especially massive tax policy change like this.

        Now the REBGV is commenting on the number of deals which have issues. It seems to be in the mid 400’s. I would expect this is probably first-tier only and then we will have the multiplier effects.

         
  20. Comment avatar

    Reed Harris    

    HI Rob,

    I think the BC Liberals didn’t take it far enough, actually. There is a far worse group of people who are taking away housing from local residents in Vancouver. They are an insidious group that seems to be able to move here unrestricted and make our housing unaffordable, and we can’t seem to make them stop.

    People from Alberta and all provinces east seem to come to Vancouver in droves, taking all the affordable housing with their petro-dollars and precious transfer payments. Its time we made a surtax on all out-of-city hacks who are buying in Vancouver. Apply the 15% to everyone not currently living in Vancouver, see what happens.

    No exceptions for BC residents either, got to be fair to the poor people of Vancouver who deserve to live cheaply.
    .

     
    1. I hate biggots    

      Reed has a good point. Why aren’t Alberta residents taxed for buying in Vancouver and driving up house prices?

      I’ll tell you why, because this tax is R-A-C-I-S-T. Period.

       
      Comment avatar
  21. Comment avatar

    Robert Dogash    

    I think Rob’s article is both poorly argued and lacks truth.

    The Chinese do not permit foreign born individuals from buying real estate at all in mainland China. In fact, you have to work in China and show at least one year’s worth of employment IN China before they are permitted to buy. In addition, you never actually own anything in China since officially you are just buying a long term lease from the government. Do your research before you start advocating truths about other jurisdictions that you know nothing about.

    The tax is reasonable and the immediate implementation did exactly what was intended which was show the vast amounts of real estate being bought by foreign nationals despite everybody and their dog insisting that it wasn’t happening.

     
    1. Robert McLister    

      @Robert, You provide one largely inaccurate argument and claim the story’s points are poorly argued and untruthful. Ironic. In 2006 China banned foreign citizens living and working in China for less than a year from buying a home. See Opinions on Regulating the Entry into and Administration of Foreign Investment in the Real Estate Market (decree no. Jian Zhu Fang [2006] No. 171, “Opinions 171”). It has since announced a change in this policy. The comment that China “lifted most restrictions” referred to this and other policy loosening, including but not limited to the removal of certain capital and financing restrictions applying to foreign buyers. In no case was it suggested that China freely permits foreign buying in all of mainland China. The message is that the world’s biggest socialist-based economy has substantially relaxed foreign ownership regulations — a move in the opposite direction of protectionism.

       
      Comment avatar
    2. MD    

      Trolls are always entertaining, if you find narrow-minded dastards entertaining.

       
      Comment avatar
  22. Comment avatar

    Clark Broke the Market    

    Metro Vancouver sales dip as much as 84% in the weeks after the foreign buyers tax: http://www.ctv.news/OfokknX

    Way to go Christy Clark. You just FCUKED 70% of your constituent homeowners. Enjoy retirement after you lose the next election in a LANDSLIDE!!!!

     
  23. Comment avatar

    XYZ    

    “Foreign-buyer tax to spur Vancouver housing correction, TD warns”

    http://www.theglobeandmail.com/real-estate/vancouver/vancouver-house-prices-to-dip-10-per-cent-due-to-foreign-tax-report/article31620006/

    Thank you Liberal government for crushing the equity of over one million BC homeowners.

     
  24. Comment avatar

    Delmar Geary    

    Timely piece , I loved the insight . Does anyone know where my business could possibly grab a fillable DA 26 6382 form example to edit ?

     
  25. Comment avatar

    nan    

    Residential real estate is a non fungible, limited resource that should be protected for the use of Canadian citizens first and the use of all other groups second. As long as there are challenges to ownership in Canada, those challenges should be offloaded to those in the second group to ensure the working class and citizenry, those most important to the sustainability of the Canadian economy (and with the right to vote) have safe, secure, convenient places to live and vacation. NO ONE from outside the country has the right to stand ahead in line of any Canadian for any Canadian resource, no matter how much money they have. If you want access to our residential real estate markets, move here. move your families & businesses here and pay taxes on your worldwide income here. Otherwise, fly here from time to time, vacation here all you want, stay in hotels, ski whatever…and rent ..you know like all the realtors and mortgage brokers are telling Canadians to do while they sell out Canadian housing out from Canadian workers to the highest bidders for their own commissions and origination fees.

     
    1. Too Many Vancouver Crybabies    

      Nan: You have quite the entitlement complex. By your rationale there should be no foreign ownership in any desirable country. To hell with diversity and global investment. We can’t allow Nan to have a longer commute.

      Canada is a big place. If Vancouver is too expensive for you go east. You can buy a home for 1/8th the price in Nova Scotia where you will never have to set your intolerant eyes on a foreigner again.

      By the way, those international buyers you criticize are not buying “working class” homes. Your blame is totally misplaced if you are advocating for the middle class.

      Finally, mortgage brokers don’t sell houses or make a living from foreign buyers. Those buyers either pay cash or use banks who have higher lending limits. Learn the truth before you spew untruth.

       
      Comment avatar
  26. Comment avatar

    YFZ    

    As of September 22, 2106, impact of 15% PTT on foreign buyers are emerging, despite how the media wants to twist the facts. Whether the 15% is justified, let’s see what the court would say in next a couple of years. Everybody I know are betting on market correction, somewhere between 20% and 30%. Any thoughts on that? How is that going to play out in the mortgage rate market? Any comments or prediction?

     
    1. Robert McLister    

      Hey there YFZ,

      Based on average prices, which have fallen about 20% from the peak, Vancouver’s correction has already begun — at least on upper end homes. It wouldn’t at all be surprising to see average prices sell off 30%+ (from the high), but I can’t predict the future, so I won’t.

      If that did happen, it wouldn’t have a huge effect on rates, unless of course the selloff became widespread/national. It would, however, make it harder for some folks to refinance.

      Cheers…

       
      Comment avatar

Leave a Reply

Your email address will not be published. Required fields are marked *

7 − six =