Realtors and homebuyers alike will almost certainly agree that speculation in the Canadian real estate market has become hugely problematic, and it seems now that British Columbia is taking measures to address and reduce the frequency and widespread nature of it. The Province’s 2018 budget was introduced along with a 30-Point Plan For Housing Affordability In British Columbia. With it comes the most aggressive strategy for tackling real estate speculation Canada has ever seen.
Our online real estate lead generation system here at Real Estate Leads has made it easier than ever for realtors to get more out of their prospecting efforts, but in the bigger picture there has to be a steady supply of prospective buyers out there for those buyer leads to exist in the first place.
Having buyers come from varied demographics – and most certainly having the majority of them being local – is something that stands to benefit the real estate business as whole, rather than a select few catering to a very isolated and smaller investor-exclusive segment.
Here’s the most important points from the B.C. 2018 budget that looks to impact real estate prices in the Province.
2% Annual Speculator Tax
The new annual speculator tax takes aim at both foreign and domestic homeowners that do not pay income taxes in BC. The tax starts at 0.5% of the assessed value of the home, and that assessment will begin this fall. It will gradually increase to 2% by 2019, with most homeowners being exempt from this tax. Instead, it targets those with high worldwide incomes who pay little to no taxes in BC. Audits will be used to ensure compliance.
This tax is necessary because BC has seen a number of low income households with the family head surprisingly owning very expensive real estate. The suspicion is that they are not declaring international income, and it’s these same individuals who one of Canada’s largest banks has also recently decided to crack down on as well when it comes to issuing mortgages.
Luxury Transfer Tax Increase
The wealthiest of homeowners will now be presented with an additional transfer tax, and for the past 2+ weeks the property transfer tax above $3 million has been increased from 3% to 5%. The province is also increasing the provincial school tax for these homeowners. The message? Luxury home prices are only for those who can truly afford it.
Some might see these as ‘eat the rich’ tax schemes, but it’s actually addressing a very real issue in Vancouver and – to a lesser extent – Victoria. Take note of how tear-down homes have been trading to speculators for often well over $3 million, before buyers tear it down to build their dream home – often ‘luxury housing.’ Many of the tear-down homes are perfectly livable, attractive, and most importantly functional and keeping them as inventory on the market makes much more sense.
Increasing The Foreign Buyer Tax
The expansion and increase of the province’s foreign buyer tax also became effective 2+ weeks ago. The 15% tax levied on property transfers to non-residents buying in Metro Vancouver will now be upped to 20%, and expanded to the Capital Regional District, the Fraser Valley, Central Okanagan and Nanaimo Regional District as well. The idea behind expanding it is to prevent any non-resident speculation from relocating itself into neighbouring communities.
Non-residents buy 1 in 5 condos in Vancouver, and condos have long been the starting point for homeowners. Excess pricing pressure is needed to break the chain so the first-time homebuyers can get into the market. A situation where young people with good jobs can’t get into the housing market isn’t good for anyone, real estate professionals included.
Consider as well that 1 in 5 overseas buyers are only the ones that hold the property through completion. The foreign buyer tax does not address speculators engaging in pre-sale flips, making the next measure of the budget quite necessary.
Crackdown On Pre-Sale Flipping
The province had now chosen to create a mandatory database of condo-presale buyers. No longer will it be only developers that know exactly who were buying and flipping properties. This newly generated information will be shared with federal tax authorities and, more importantly, will give the province some hard numbers on the real extent of this problem.
All it takes is 5% down to play the condo speculation game. Across Canada, condo assignments are being utilized to make up an ‘as you go’ real estate derivatives market. You buy a pre-sale for 5% down, and then sell the assignment to someone else before the next 5% comes owing. Like margin trading for the stock market, or buying options? Exactly.
Being able to buy a $1,000,000 condo assignment with just $50,000 down is preposterous enough to begin with. But being able to sell it for a 5% increase before that next 5% is due just builds on that absurdity. Close that and you made $50,000 on a $50,000 investment. This type of behaviour has to stop, as homes are for housing and not for an investment.
Moving To End Hidden Ownership
B.C. is also aiming to track beneficial ownership of property, with the Land Title and Survey Authority set to start requesting additional information on property transfers. They’ll also maintain a publicly accessible registry of beneficial ownership of all properties and share that information with tax authorities, and law enforcement if necessary.
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