Average Vancouver and Lower Mainland homeowners will still gain despite 15% foreign buyer tax
Since the British Columbia government introduced its new 15% foreign buyers tax to curb Vancouver runaway housing market, property deals in Vancouver involving foreign buyers dropped to 60 between Aug. 2 and Aug. 31 after hitting 1,974 between June 10 and Aug 1. In early September, the Real Estate Board of Greater Vancouver said home sales fell 26 percent in August compared with the same month last year. The Real Estate Board of Vancouver shows the average price of a home in the region has fallen with average prices for a detached single family Vancouver priced at $1.8 million at the start of the 2016 and now dropping to $1.47 million last month. However there is conflicting information here as the average price point encompasses ALL houses priced anywhere in the metro Vancouver area, and its surrounding regions from the $1 million to $15 million range. After the housing price boom before the foreign buyer tax was implemented came to a halt prices may have appeared to have dropped sharply. But some paint a different picture.
“Put it into perspective,” says Vancouver Real Estate analyst Charles Broom. “The number factor in the average price of house in Vancouver (not “benchmark” price—the average kind of house people live in and not the $3- $15 million property), but a $800,00-$1.2 million detached family house that is more common.” Broom explains that these houses are the most commonly traded houses, “not the mega expensive super- sized mansion in West Vancouver, The British Properties, and other wealthy enclaves.” Broom explains further. “In Vancouver, the benchmark prices have either leveled off or are enjoying mild increases- nothing like the crazy increases from the last two years.” This contrasts with the much higher priced houses that are taking way bigger hits in price decreases. “In fact, the higher priced the house is, the more at risk you are of seeing fairly dramatic price falls. See it like this if you have a $10- 15 million dollar house and you want to sell in today’s market where there is now a shortfall of foreign buyer who has been scared away by the government’s foreign buyer tax. Well, will a $1- $2 million dollar price decrease in your property affect you? Perhaps but not as much as if you had a $1 million dollar property, which could wipe out any equity.” And herein with lies the rub. The lower priced properties aka the “real” benchmark properties are the ones in demand now and won’t take such a big hit.”
Sashi Deo, another Vancouver realtor, agrees with this analysis to a point. “We know in the real estate trade that the B.C. government’s 15-per-cent tax on foreign buyers has thrown a curve ball to the foreign buyers who were expecting prices just to go up and up in Vancouver. So I’m no longer selling homes in the $3 million to $6 million range, there are no more buyers since the 15% tax and the federal government’s closing of tax loopholes recently.” Deo continues, “Now it’s the $1.- 1:5 million dollar homes local people are looking at, but supply is tight, people are either taking property off the market to see where the price is going and adopting the so-called “wait and see approach.” So inventory is limited as people hunker down and wait for prices to go up substantially. It’s a classic way for the housing market to react – close off supply and hope prices go up. The more expensive properties will take the hit for sure.”
Deo also says other areas not affected by the 15% buyer tax are reaping a windfall – “Foreign buyers are looking at Victoria now, where the market is unyielding and even as far as Seattle. Many buy to flip later and make money. If they can’t do it here, they will go to where they can make money, even as far as Toronto where house prices are going through the same increases Vancouver went through.
Broom also concurs. “Demand is outstripping supply, and so homeowners are at an advantage and not panicking as far as I can see. Most owners can pay their mortgages and as long as interest rates are low and the market stays high, we won’t see people going underwater in their homes and handing the keys back like what happened in the US in the housing crash of 2008.” Broom adds, “If you have an average benchmark house at the sweet spot say $1 million to $2 million its best to hang on and hope for modest price gains probably in the single digits, not the 100-150 % percent price increases we had in the last few years. If you bought when prices were low, you have already made you money anyhow. Will foreign buyer come back and will we see the crazy price rises again? Only time will tell, but for now, homeowners who own modest properties are still at a huge advantage.”