View of apartment buildings in Vancouver, Canada.
Foreign property buyers in Vancouver will have to contend with a new property tax aimed at cooling Canada’s red-hot property market.
Starting 2 August, overseas buyers will need to pay an additional 15 percent transfer tax for residential property purchases in Vancouver, announced the province of British Columbia — the latest government to join the likes of the UK, Australia and Singapore to take steps in curbing overseas demand while keeping prices within the reach of locals, reported Bloomberg.
Although the measure came as a surprise to many and is more significant than expected, it could see average prices drop by five percent, while home sales may fall by up to 20 percent in Vancouver over the next three quarters, said Toronto-Dominion Bank economists Michael Dolega and Diana Petramala.
“I think this marks some sort of paradigm shift,” said Dolega, referring to concern on soaring home prices in some Canadian cities. “There are definitely changes afoot.”
Meanwhile, British Columbia Finance Minister Michael de Jong revealed that British Columbia absorbed over C$1 billion (S$1.03 billion) of foreign housing investment in five weeks alone this summer.
In defending his decision not to give advance notice, de Jong said: “Why didn’t we warn people? It’s tax policy.”
Knight Frank researcher Kate Everett-Allen said the proposed legislation, which has to be passed by the provincial legislature, enables British Columbia to expand it beyond Vancouver and adjust the tax rate within a range of 10 to 20 percent at a later date.
There are also some loopholes in the legislation while details on how to police the new measures “remain unclear”, she said. In fact, the tax relies on home buyers reporting their nationality and it is unclear whether a resident with citizenship can acquire a property by proxy for a relative living abroad, she added.
Still, “there is no doubt that the new law will cool sales volumes and prices as foreign buyers absorb the additional cost implications”, she said.
However, Charles St-Arnaud, senior economist at Nomura International Plc in London, noted that it isn’t clear if the new tax will create a big downturn.
“But when you look at the economics, five percent of the transactions are with foreigners, and it’s always the marginal buyers that drive the price higher,” he said. “If those marginal buyers disappear, the market price settles.”