Vancouver real estate marks one year of the foreign buyers' tax

Yes, it’s hard to believe. It’s been a whole year since Christy Clark introduced an extra 15% property transfer tax for foreign buyers of real estate in Metro Vancouver.

Since then of course, British Columbia has seen some serious ups and downs, not least the recent transfer of power from Christy’s BC Liberals to the BC NDP.

And of course, Clark’s subsequent resignation. But what has the foreign buyers’ tax actually achieved? Here we take a look back at the past year in real estate.

Foreign buyers’ tax is introduced

The BC government begins collecting data on foreign buyers in Metro Vancouver and finds they account for 13.2% of home purchases from June 10 to August 1.

On July 25, 2016, the BC government announced an extra 15% property transfer tax would apply to foreign buyers of real estate in Metro Vancouver.

The new tax, which would come into force on August 2, 2016, did not apply to permanent residents, but it did apply to temporary foreign workers.

Criticism of the new foreign buyers’ tax

However, the Real Estate of Board of Greater Vancouver criticized the government for failing to consult the real estate industry about the extra tax.

Some home buyers waiting to close on purchases made before the tax was announced suddenly found themselves expected to pay the extra.

As well, some experts predict the tax could cause the real estate market to crash, slashing average home prices by more than a third.

Support for the foreign buyers’ tax

An Angus Reid poll conducted just after the new rate was announced found that 90% of respondents supported the new foreign buyers’ tax rate.

The survey also found respondents laid the blame for Vancouver’s red hot real estate squarely on the shoulders of foreign buyers.

Some 65% selected foreign investing from a multiple choice list of possible factors, while 41% simply chose wealthy people investing here.

Foreign investors skip Vancouver

Later in September, foreign interest in Vancouver real estate seems to be moving elsewhere, according to data collected by a Chinese international real estate website.

Throughout the months of August, inquiries into Seattle and Toronto properties were up 143.2% and 142.6%, respectively, compared to the same month in 2015.

In contrast, inquiries about Vancouver plummeted by 81% during the same period.

Foreign buyer tax loophole closed

By October, Trudeau had closed a tax loophole that allowed foreign investors to avoid paying capital gains taxes on Canadian home sales, as long as they were living in the home.

Instead, the principal residence exemption on capital gains tax would only be available to residents of Canada.

Foreign home buyers plummet

New data released by the provincial government suggests the retreat of foreign investment in residential real estate in Metro Vancouver.

In August, home sales to foreign buyers plummeted to just 0.9% in response to the surprise introduction of the extra property transfer tax.

Overall, foreign buyers were responsible for just 1.3% of the 12,114 transactions that took place since the government introduced the tax.

Americans look to move to Canada

With the election of Donald Trump in November, a new wave of interest came from foreign buyers in America, as many looked to leave the US.

According to massive employment website Monster, the number of Americans searching for jobs in Canada jumped some 58% from the previous year.

British Columbia and Vancouver are some of the most searched Canadian destinations, and some experts say Trump’s election will push home prices up again.

Vancouver becomes ‘buyer’s market’

According to figures provided by Royal LePage, home prices in Vancouver in the last three months of 2016 actually fell by 0.4%, compared to the previous three months.

That doesn’t sound like much, but by comparison, in 2015, home prices in the fourth quarter were up by 9.8% compared to the previous year.

The company said this resulted from a lack of affordability and quality homes, as well as market uncertainty due to conflicting governmental intervention.

Vancouver ranked ‘severely unaffordable’

By January 2017, Vancouver had been ranked the third most unaffordable housing market in the world in a new survey.

It found house prices rose the equivalent of a full year’s household income in 2016, enough to rank the city in the “severely unaffordable” category.

Vancouver house prices had been rising well above the economic fundamentals in Canada for at least a decade, the survey noted.

Temporary foreign workers exempt

Christy Clark announces that the foreign buyers’ tax rate would no longer apply to those living and working in British Columbia on temporary work permits.

The move came coincidentally after Canada said it will offer temporary residency to anyone stranded in Canada due to Trump’s latest travel ban.

In the aftermath, said a spokesperson, Clark believed it was important to signal that British Columbia is open to people from around the world.

Quicker than anticipated rebound

According to Royal LePage’s 2017 Q1 report, every market in Metro Vancouver except Burnaby saw double-digit growth in home prices compared to the first quarter of last year.

Government action, like the province’s foreign buyers property tax, may not be helping, said Randy Ryalls, general manager, in March.

Ryalls added that intervention increases the potential for market volatility, sending prices down and sharply back up again.

Homeowners reluctant to sell

Home sales in Metro Vancouver dropped in March compared to the same month last year, sending prices up as buyers compete to purchase fewer properties.

Apartment sales decreased by 18.3% compared to March last year, but the benchmark price was now $537,400, up 5.2% over the past six months.

Where are we now?

By July, the messages were still coming in mixed.

On the one hand, Montreal has passed Vancouver as the preferred Canadian destination for Mainland Chinese buyers.

On the other, Greater Vancouver home prices are on the up again, and they don’t look to stop any time soon, according to the Canadian Real Estate Association.

A CREA report on June real estate sales across the country found home prices in Greater Vancouver are up 7.9% compared with the same month last year.