Foreign home buyers in Vancouver hit with HK-style 15pc tax, but millionaire migrants will be exempt
Real estate board seeks exception for transactions already in progress, denouncing surprise plan for introducing ‘needless uncertainty’
Faced with mounting anger over soaring home prices and the suspected role of Chinese money, the government of British Columbia on Monday announced a surprise Hong-Kong-style 15 per cent tax on foreign home buyers in Vancouver.
However, the measure will exempt the rich and foreign-earning immigrants who have long been associated with movements of the Canadian city’s real estate market.
The unexpected measure, which will take effect on August 2, imposes the tax on purchasers of residential real estate in greater Vancouver if they are “foreign nationals or foreign-controlled corporations”, according to a press statement.
“Owning a home should be accessible to middle-class families, and those who are in a position to rent should be able to find a suitable home,” Premier Christy Clark said. “These changes are about helping to make sure that British Columbians can continue to live, work and raise their families in our vibrant communities.”
However, the 15 per cent tax will exclude permanent residents of Canada, regardless of nationality. Peer-reviewed research has previously linked Vancouver’s real estate market and its decoupling from local incomes to the presence of rich and foreign-earning immigrants, including millionaire immigrant investors, mostly from China, who have flocked to the city in their thousands. More than 60,000 millionaire migrants and family members have arrived in Vancouver since 2002.
BC Finance Minister Mike de Jong instead cited a recent government study, based on less than one month of data, which found sales to non-citizens and non-permanent residents made up 6.5 per cent of Metro Vancouver transactions by value. More than 90 per cent of those buyers were Chinese.
Big mistake to focus on "foreign nationals"/citizenship status instead of foreign cash. Easy to evade, costs people it shouldn't. #VanRE
— David Eby (@Dave_Eby) July 25, 2016
But the study was widely criticised for focusing on whether a buyer was foreign or non-resident instead of whether the money came from overseas, and thus downplaying the impact of foreign capital.
“The data we started collecting earlier this summer is showing that foreign nationals invested more than C$1 billion (HK$5.9 billion) into BC property between June 10 and July 14, more than 86 per cent of it in the Lower Mainland,” said de Jong. “While investment from outside Canada is only one factor driving price increases, it represents an additional source of pressure on a market struggling to build enough new homes to keep up. This additional tax on foreign purchases will help manage foreign demand while new homes are built to meet local needs.”
The Real Estate Board of Greater Vancouver denounced the new tax with barely concealed anger, calling for transactions in progress to be exempted.
President Dan Morrison said: “Implementing a new real estate tax [with] just eight days’ notice and no consultation with the professionals who serve home buyers and sellers every day needlessly injects uncertainty into the market.
“Government has had a long time to take action on the affordability issue, yet they decide to bring this new tax in over a long weekend, with no notice, and no time to prepare. It would have been prudent to seek consultation from the people most knowledgeable about the impact.
“To minimise short-term volatility in the market, we’re calling on government to exempt real estate transactions that are in the process of closing from this new tax.”
Foreign and non-resident buyers who try to dodge the new tax will face up to two years in prison and fines of up to C$100,000 for individuals and C$200,000 for companies, in addition to the unpaid tax.
The new measure took many off guard, with the BC Liberal government having long opposed new taxes on foreign buyers. But with home prices soaring by more than 30 per cent in Vancouver last year, concern about the role of foreign money in the market has reached a fever pitch. A provincial election is due in less than a year.
Opposition housing critic Dave Eby of the NDP labelled the decision to focus on foreign nationals instead of foreign cash a “big mistake”.
— Christy Clark (@christyclarkbc) July 25, 2016
“You need to follow the money,” he said on Twitter.
University of British Columbia economist Tom Davidoff called it a “significant move”, but said it “certainly isn’t limiting Vancouver real estate to people who work here”.
“I do think we are going to see fewer foreign buyers … the question is whether that foreign money will continue to find its way into the Vancouver housing market anyway, through related parties,” he told CKNW radio. “If your cousin is a permanent resident or citizen, then of course you’ll buy through them.”
The new tax echoes Hong Kong’s 15 per cent tax on residential property purchases by non-permanent-residents and corporations imposed in October 2012, a measure designed to stem a flood of mainland Chinese money into the city’s housing market.
BC’s new tax will be subject to adjustment, to between 10 per cent and 20 per cent depending on market conditions, de Jong said.
The government also announced on Monday the creation of a “Housing Priority Initiatives Fund” with an initial investment of C$75 million, a portion of which will come from the new tax on foreign buyers.
The average price of a detached home in greater Vancouver now sits at about C$1.8 million. The REBGV’s “benchmark” price for all types of housing sits at C$917,800, a 32.1 per cent increase compared to June 2015. However, Vancouver’s incomes are among the lowest in Canada, making the city one of the least affordable in the world.
In his 2010 book “Millionaire Migrants”, UBC geographer David Ley found an “unusually decisive” correlation between foreign immigration to Vancouver and the city’s home prices. The same year, professors Markus Moos and Andrejs Skaburskis concluded Vancouver had experienced a “de-coupling of local housing from labour markets”, due to the role of rich and foreign-earning immigrants whose “housing consumption became less tied to their local labour market participation”.
NOTE: This story has been updated to include a statement from the REBGV, issued several hours after initial online publication