What Vancouver can learn from Hong Kong on cooling housing markets
Albert Cheng warns that the British Columbia premier’s policy of extra taxes on foreign homebuyers could misfire; the best way to make homes affordable for locals is to build more public housing
Politicians can easily get their fingers burnt when tampering with housing markets. One only has to ask former chief executive Tung Chee-hwa, whose 85,000-flats-a-year target triggered his downfall. Christy Clark, premier of British Columbia in Canada, has yet to realise this. In time, she will.
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Her liberal government has recently introduced a 15 per cent property transfer tax on foreign buyers as well as a nationality-blind luxury sales tax on homes priced over the equivalent of HK$12 million.
The measures are on top of the existing capital gains tax. Both buyers and sellers were caught by surprise; deals were abruptly cancelled before August 2, as there was no retrospective grace period.
These steps are meant to ease pressure on the city’s overheated home market, to make prices affordable for local first-time buyers.
Last Friday, the Real Estate Board of Greater Vancouver revealed that 2,489 detached houses, condos and town houses were sold in August, down 26 per cent from the same month last year. Only 715 detached houses in Greater Vancouver changed hands last month, a sharp 44.6 per cent decline from 2015 levels. However, the slump in transactions only drove down the average price of detached houses sold last month by about 0.3 per cent, to HK$8.9 million. Home prices, for now, remain beyond the reach of average families in Vancouver.
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The first to suffer are the property owners with a genuine need to cash in, especially senior citizens with an empty nest who want to downsize. Buyers, including foreign ones, will now demand that sellers absorb the additional costs. This has happened in Hong Kong, where developers offer special mortgages or other preferential terms to offset the extra property taxes. It is unclear whether Clark was inspired by similar moves in Hong Kong. Four years ago, a buyer’s stamp duty was adopted to require non-locals and companies owned by locals or foreigners to pay an extra 15 per cent. Buyers who acquire more than one flat here now need to pay double stamp duty. There is, however, a notable difference between the two metropolises. In general, there is no capital gains tax in Hong Kong. Yet, profits from real estate in Vancouver may be taxed as a capital gain, in which case 50 per cent is taxable. They could also be taxed as business income, in which case 100 per cent of the profit is subject to tax.