The new property transfer tax rate for foreign buyers in Metro Vancouver could lead to a crash in the real estate market, according to one UBC expert.
Tom Davidoff, associate professor at the Sauder School of Business, told Daily Hive he was surprised to hear about the new tax rate announced Monday.
Under the new rate, foreign buyers of real estate in Metro Vancouver will have to pay an extra 15% property transfer tax at the time of purchase.
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Davidoff says that’s a positive step towards a more affordable Vancouver, and thinks it could knock 10% off home prices – or more.
“It could also trigger a crash,” he said. “I don’t think that’s the likeliest outcome, I don’t think there will be a crash, but it could happen.”
Avoiding the tax?
Anyway, Davidoff said, he would be surprised if a lot of foreign buyers end up paying the extra.
“I expect, to the extent foreign buyers now buy in this market, they will do so through friends, or family, or connected businesses etc.”
“I suspect there’ll still be some money coming in avoiding the tax and I think there’ll be a lot of buyers going to Victoria or Kelowna, where the tax is not in place.”
To stop people avoiding the extra tax, Davidoff says, the City of Vancouver now needs to integrate its planned empty homes tax with the provincial property transfer tax rate.
“I think that could really help clamp down on people’s ability to buy on behalf of relatives overseas to avoid this provincial tax.”
Davidoff says he expects there will now be a rush to purchase real estate and cancel contracts before the extra tax rate comes into force on August 2.
Calls for exemption
Meanwhile, the Real Estate of Board of Greater Vancouver has slammed the province for failing to consult the real estate industry about the extra tax.
“Implementing a new real estate tax… with just eight days’ notice and no consultation with the professionals who serve home buyers and sellers every day needlessly injects uncertainty into the market,” said president Dan Morrison in a statement.
Morrison is calling for the government to exempt real estate transactions currently in the process of closing from the new tax rate.
“Government has had a long time to take action on the affordability issue, yet they decide to bring this new tax in over a long weekend, with no notice, and no time to prepare,” he said.
“It would have been prudent to seek consultation from the people most knowledgeable about the impact…to minimize short-term volatility in the market.”