15% Tax on Foreign Buyers
As most people have heard, Christy Clark has implemented a new foreign homebuyer tax on all closings after August 2nd, 2016. All non-residents, corporations controlled by foreigners, and a trust where a trustee is a non resident will now be taxed an additional 15% on all homes purchased in the Greater Vancouver area. To put this in perspective, a $2 million home (which is not uncommon in Vancouver) would be charged an additional $300,000 upon closing. The Premier was quoted as saying that they needed to take measures to cool down the Vancouver market and creating more supply wasn’t possible so dampening demand was their next option.
There have already been talks of loopholes to avoid this and what this means for people with contracts already in place. As of now the government seems to be standing strong and being quite strict with those trying to avoid this tax.
What does this mean for the housing market?
It is still a bit to early to see what the repercussions will be. According to the Real Estate Board, foreign buyers only make up about 5% of the Vancouver market. Overall it will be interesting to see how this will effect the market and the Vancouver economy in the long term. As of now it seems that economists and professionals in the field seem to all have different opinions. Some believe that it will tame housing prices for about a month before it continues to grow at the same rate. Others think that foreign buyers have a huge impact on prices and they will take their money elsewhere.
With the widespread media talks and controversies I could see this scaring off a few buyers or those in the midst of their subject removal period. A few transactions will no doubt collapse in the short term as buyers and sellers will want to wait to see the outcome. However, in the long run I don’t expect this to make drastic changes in the market. It would have been nice to see the government give some of this money back to local buyers in terms of tax breaks or help small local business owners. That does not seem to be what they were going for. There are talks that the 15% tax will go to build more rental accommodations which may help the vacancy rate however I do not see that helping to increase supply for buyers in the area.
Only time will tell what influence this foreign homebuyer tax will have on the economy. At EastVan Townhouses we will keep you updated on the market as things change and if you have any questions always feel free to reach out.