In August 2016 the B.C. Provincial government introduced a 15 percent tax on foreign property buyers and non-residents. The tax was implemented to cool international speculation that has been being blamed for double-digital increases in property values in Vancouver that have skyrocketed, and priced out residents. The tax adds more than $150,000 onto a $1 million dollar house or $300,000 on a 2 million dollar property. Vancouver is one of the most expensive real estate market in the world- and unaffordable housing is a critical issue in British Columbia.
The day before the implementation of the tax, more than 9,200 transactions were filed breaking the 2007-2008 record of more than 8,400 in a single day, according to the B.C. Land Title and Survey Authority. The demand was so heavy that it crashed the land titles office’s electronic filing service on the day of introduction, the authority said. Vancouver Realtors reported after the introduction of the tax and the days leading up to it foreign buyers who couldn’t rearrange previously negotiated closing dates walked away, leaving cases where deposits on the property are now in limbo and subject to court cases as people try to recover them.
Real estate experts are cautious and say it is too early to tell what the long-term effect of the tax will be on the housing market. Most realtors are looking for early 2017 to see where the market will be, to gauge the proper impact of the tax. However, actual figures released in the first week of September 2016 by the Greater Vancouver Real Estate Board (REGVB) showed real estate in the Greater Vancouver fell in August by 23 percent from the previous month and was down 26 percent from August last year. Real estate prices are no longer skyrocketing, and sales are slumping in Metro Vancouver’s red-hot housing market for the second straight month, The number of properties sold in August dropped nearly 26 percent compared to the previous year, according to figures released by the REBGV. But according to the industry association, the decline in sales represents a return to “typical levels” and it’s too early to say if the recently introduced 15% tax on foreign buyers is responsible for the slump.
“The record-breaking sales we saw earlier this year were replaced by more historically normal activity throughout July and August,” said REGVB President Dan Morrison. He also added that while the market has shown a downturn since last
“It’ll take some months before we can understand the impact of the new tax,” he added. “We’ll be interested to see the government’s next round of foreign buyer data.” Morrison was optimistic however and noted that despite the decline in sales, sellers in Vancouver are still considered to have the upper hand in the market because of the limited number of homes for sale.
“There are still more buyers in the market than there are sellers, surprisingly, so we still see pressure on prices.”
Indian foreign property buyers – Tax has no impact
In 2014, the US National Association of Realtors published a report which stated that buyers from India purchased residential properties in the US estimated at $5.8 billion in value during the one-year period ending March 2014. This investment figure represented an approximate growth of 6 percent over 2013. It went on to state that Indians spent $4, 59,028 (Rs 2.81 crore) on an average to buy properties across cities like Los Angeles, Las Vegas, Chicago, Dallas and New York. Many Indians who have become naturalized US citizens have business interests as well as families in the main American cities and have invested heavily in both residential and commercial properties.
Anuj Puri of Jones Lang LaSalle, wrote in a recent article for the Indian MoneyControl website, saying: “Investment into the US real estate market is familiar with Indian investors, many who bought U.S. property cheaply in the 2008 -2010 recession and downturn and are now seeing significant returns and profit as the American real estate market is in revival.
However, it is different case for B.C. Local Vancouver property investor Arun Johal says the 15% tax does not affect Indian foreign real estate buyers, “Vancouver is not a place where wealthy Indian investor buy property. Investment in property abroad for NRI’S makes sense for those who are employed or have business interests in a country. Most high net worth NRI’s are wealthy business people or professionals who prefer to buy in places such as London, the U.K, New York, Singapore, Malaysia or the Gulf where they do business or work.”
Johal adds, “Vancouver may have a great lifestyle, but it is not considered an international business destination for the Indian elite. The UK predominantly London – is the number one preferred destinations for Indian property buyers who work or have family ties there.” Johal does add, “Recently Indian property buyers are also looking at places like Florida and Dubai, while Vancouver is seen as not good value for money as business opportunities are limited. If an Indian buyer does want to live in Canada, they see Toronto as a better investment, as it’s a better place to do business place.”
Johal says, “South Asians in Vancouver and the surrounding municipalities are also not impacted by the 15% foreign buyers tax, but are watching, it will mainly affect Chinese consumers. But then again if a Chinese buyer is spending $5- 10 million on a property they will buy it regardless of the tax.” He adds: “The local South Asian community is very active in the B.C. real estate market as buyers, sellers, investors and in construction, so they have a vested interest in seeing a healthy booming housing market, most are settled here, and so the tax has no real impact on them unless they are foreign residents. Indian foreign property buyers are a minuscule percentage.”