Finance and economics: Property taxes: Home bias
A taxing problem for foreign buyers.
Even in hot markets like Vancouver, property sales normally slow in the summer.
But for Sonia Prasad and other estate agents, the last days of July were a blur of hurried sales and paperwork as buyers and sellers rushed to complete transactions before an August 2nd deadline.
On July 25th the provincial government of British Columbia decreed that, after that date, foreign buyers must pay a new 15% tax on any residential purchase.
The tax is aimed at stopping these buyers from pushing up prices in Canada’s most expensive residential-property market.
Ms Prasad’s last-minute buyers included a couple from China who were purchasing a C$400,000 ($305,000) condominium in the suburb of New Westminster for their son, a student starting college in September.
The extra $60,000 they would have had to pay might have killed the deal, MS Prasad says.
Indeed, the tax seems likely to have prompted some foreign buyers to walk away from deals agreed, but not completed, before the deadline.
Governments at all levels, from municipal to federal, have been under pressure over the past two years to curtail foreign ownership in Vancouver.
Michael de Jong, the finance minister of British Columbia, says foreign nationals invested more than C$1 billion in the province’s properties in the five weeks between June 10th and July 14th.
More than C$860 million of that was spent in metropolitan Vancouver.
Back in 2011 the median price of a detached home in Vancouver was C$933,000; now it is C$1.56m.
Household median incomes in the city have been rising only gently, from C$69,000 in 2011 to C$76,000 by 2014.
Sherry Cooper, chief economist at Dominion Lending in Toronto, says Vancouver’s inflated prices are higher than anywhere else in the country.
“When everyone is screaming about affordability, the government has to look like it’s doing something,” she says.
Other jurisdictions have also implemented policies and surcharges to reduce foreign ownership in their residential markets.
In December Australia’s Foreign Investment Review Board started to charge application fees for foreign buyers.
Hong Kong, the most expensive real-estate marketing in the world, has added a 15% surcharge on home purchases from non-permanent residents.
Britain has raised the stamp duty on homes worth more than ￡1.5m, the kind of properties bought by rich foreigners.
To some, however, British Columbia’s move was poorly thought out.
Under the Canada China Foreign Investment Promotion and Protection Agreement which took force in October 2014, foreign investors must be treated as favorably as locals, says Barry Appleton, a trade lawyer.
The new tax, which targets all foreigners and not just Chinese buyers, will also violate the terms of the North American Free Trade Agreement, he alleges.
This policy could end up being settled in the courts.