Canada steps up scrutiny on foreign property investment

Canada is stepping up its scrunity of foreign investment in the country’s real estate.

The Liberal goverment announced its budget last week and has committed to spending $39.9 million over the coming five years on compiling information of foreign ownership of homes across the country, as well as the demographic of the non-resident owners and how they are financing their investment.

The sum forms a small portion of the government’s $11.2 billion national housing strategy, but it marks an ongoing commitment by the country to tracking foreign demand for its property. Indeed, the debate surrounding Canada’s climbing property values and whether it is fuelled by international purchases has been raging for some time, leading Vancouver to introduce a tax on foreign buyers last year. Since then, the city has seen its prices and activity cool, while Toronto has since seen its property prices soar.

Ontario is already following in the Greater Vancouver Area government’s footsteps and is compiling data, but has not announced any plan for taxes or similar measures.

“This is much needed,” Craig Wright, chief economist with the Royal Bank of Canada, told the Financial Post. “You can’t manage what you can’t measure.”

The money will be spread over five years, with $6.6 million a year going to Statistics Canada to fund the collection of data.

The result will be the Housing Statistics Framework, a database of all properties in Canada to track purchases and sales. This will begin to be published later this year.

The budget also promises $241 million to the Canada Mortgage and Housing Corporation over the coming 11 years to help improve data collection and analysis.


Foreign buyer tax had “big psychological impact” on Vancouver property market

7th February 2017

Vancouver’s foreign buyer tax has had a “big psychological impact” on the property market, according to agents.

The 15 per cent charge, introduced in August 2016, was intended to dissuade speculative investment from overseas buyers, which was thought to be tied to the area’s supply shortage and rapidly climbing house prices. Indeed, Vancouver was one of the world’s hottest markets last year, with property prices surging 24 per cent in the 12 months to September 2016.

The tax, though, appears to have worked, with new data from November 2016 showing that 204 sales involved foreign buyers in the Metro Vancouver market, down from 1,970 sales in the seven weeks before the tax was implemented.

Now, though, the government has announced that its tax will soon no longer apply to foreign buyers with work permits to live and work in British Colombia.

Kevin Skipworth, Managing Director of Dexter Associates Realty, Knight Frank’s partners in Vancouver, comments: “This was a necessary change but how it will unfold is still not known. The tax has had a big psychological impact on the market and this change may ease some of the uncertainty enabling buyers who contribute to the local economy to now enter the property market without facing extra costs.”


Vancouver will lift property tax for some foreign buyers

31st January 2017

Vancouver will lift its property tax for some foreign buyers, local officials have confirmed.

The recently introduced levy, which charged 15 per cent to property investors from overseas, saw sales slow last year, according to agents such as Sotheby’s. The charge was introduced in response to rising house prices in the area, which some were concerned were being pushed up by foreign buyers.

Now, though, British Columbia has revealed the charge will be waived for some foreign buyers, as long as they have a work permit.

Premier Christy Clark announced the imminent measure at the weekend, during Vancouver’s Chinese New Year celebrations.

“We believe the best and the brightest should be able to come to British Columbia,” she told the press, adding that the waiver for international citizens who work and pay taxes to the province would hopefully make the area more attractive to skilled professionals.

“We’re going to lift the foreign owners’ tax on people who have work permits, who are paying taxes and living in British Columbia, as a way to encourage more people to come,” she explained.

Ben Chin, the Premier’s head of communications and issues management, added that Ms. Clark had asked officials to investigate the possible lifting of the levy some time ago. While the exact details have not yet been formally finalised, the changes are expected to be enacted in the near future.

Investors who have turned to other parts of Canada in response to the charge, meanwhile, can rest easy: there are no plans to extend the tax beyond the 22 communities it currently affects.

Tom Davidoff, an economist at the University of British Columbia, told The Globe and Mail that the exemption would be unlikely to spark a surge in foreign investment, because “relatively few” people are on work permits.

In November, foreign buyers were involved in 4.1 per cent of all homes purchased in the Vancouver area, up from 4 per cent the previous month and significantly higher than the near-zero rate recorded in the month following the tax’s introduction.


Vancouver property prices to fall in 2017

13th January 2017

Vancouver property prices are predicted to fall in 2017, according to new figures, following a dramatic year for the market.

Greater Vancouver has seen property prices race ahead of most of the country in recent years, not unlike London in the UK, Sydney in Australia or Auckland in New Zealand. With concerns that foreign investment could be helping to drive up property values, the government introduced a property tax for foreign buyers this year. Combined with mortgage restrictions, the market has seen increased uncertainty in recent months, which has led to growing moderation for prices.

The Royal LePage House Price Survey and Market Survey Forecast shows significant price appreciation across Greater Vancouver, with the aggregate home price up 25.6 per cent year-over-year to $1,230,718 in the fourth quarter of 2016. While year-over-year home price appreciation continued to surge on the back of the tremendous gains witnessed in the first half of the year, pricing across Greater Vancouver began to moderate in the fourth quarter of 2016.

“After appreciating at an unsustainable rate for the better part of the year, prices across Greater Vancouver have begun to correct as a result of deteriorating affordability, a lack of quality inventory and heightened market uncertainty stemming from conflicting governmental intervention,” says Randy Ryalls, General Manager, Royal LePage Sterling Realty. “This has led to a decrease in competition for listings across Greater Vancouver, giving rise to new market conditions where prospective homeowners have more power at the bargaining table, causing prices to soften.”

Looking ahead to 2017, Royal LePage forecasts that home prices across Greater Vancouver will depreciate by 8.5 per cent year-over-year, with the condominium segment and the region’s nation-leading economy expected to offset further decreases in aggregate prices throughout the year. It is also predicted that foreign investment will wane further within the region due to the recent Land Transfer Tax on Foreign Nationals and China’s State Administration of Foreign Exchange imposing new, stricter requirements on currency conversions.

Nationally, Canada’s residential real estate saw significant year-over-year price appreciation in the fourth quarter of 2016, supported by considerable gains in the Greater Toronto Area (GTA) and Greater Vancouver. The price of a home in Canada increased 13 per cent year-over-year to $558,153 in the fourth quarter of 2016 – the highest year-over-year national home price increase recorded in over a decade.

Looking ahead, though, as “sanity returns” to Vancouver, Royal LePage expects the regional extremes in house price appreciation that characterised the national real estate market in 2016 to narrow. This trend is anticipated to be driven primarily by the almost double-digit price correction in the Greater Vancouver housing market, strong but moderating price appreciation in the GTA, and “welcomed upward price trends” in Quebec, Atlantic Canada and Alberta.

The aggregate price of a home is expected to rise 2.8 per cent in 2017 when compared to year-end, 2016.

“The disparity in home price appreciation between Canadian regions has never been greater than that seen in 2016, with rates ranging from double-digit extremes in some cities to negative growth in others,” says Phil Soper, President and CEO, Royal LePage. “In 2017, we anticipate a movement away from the regional extremes of real estate feast and famine – and that is a very good thing.”


Foreign buyers tax hits Vancouver home sales

19th September 2016

A new tax on foreign buyers has already hit Vancouver home sales.

The 15 per cent levy introduced earlier this summer saw sales slow significantly, particularly in the luxury sector. According to Sotheby’s, the number single family homes worth over C$1 million fell 30 per cent in July compared to the same month in 2015, while in August, they fell 65 per cent. For properties over C$4 million, sales plunged 33 per cent in July and 14 per cent in August.

For condos over $C1 million, sales rose 29 per cent year-on-year, however, which Sotheby’s suggests may indicate a relatively short-term impact.

On a wider level, though, the tax’s impact can be seen rippling across the country. According to the Canadian Real Estate Association, national home sales declined for a fourth consecutive month in August 2016. Sales fell 3.1 per cent month-over-month in August 2016 – the largest monthly decline since December 2014. Together with declines in each of the three previous months, the slowdown in August places national home sales activity 6.9 per cent below the record set in April 2016.

Sales activity was down from levels in the previous month in almost 60 per cent of all markets in August. Greater Vancouver, though, led the way with a “steep decline”.

“The sudden introduction of the new property transfer tax on homes purchased by foreign buyers in Metro Vancouver has created a cloud of uncertainty among home buyers and sellers,” says CREA President Cliff Iverson. “That the tax applies to sales that had not yet closed shows how the details for a new tax policy can unnecessarily destabilize housing markets. More broadly, it speaks to the importance of evidence-based decision making to ensure that unintended consequences and collateral damage are minimized when new policies or tighter regulations affecting housing markets are being actively considered.”

“Single family homes sales were already cooling before the new land transfer tax on foreign home buyers in Metro Vancouver came into effect,” adds Gregory Klump, CREA’s Chief Economist. “The surprise announcement of the new tax caused sales to brake hard.”

Sotheby’s, though, says that prices are not expected to be significantly dampened by the tax, with the second half of 2016 marking an adjustment period that will span several months.

“The long term effects of this tax remains to be seen,” adds the firm.


Vancouver introduces tax for foreign buyers

27th July 2016

Vancouver is introducing a new tax for foreign buyers of property.

The tax, which will come into effect from 2nd August 2016, will see non-resident investors in Canadian real estate face an additional 15 per cent fee.

The tax will apply to residential purchases in Metro Vancouver, effectively generating an additional CAD300,000 for every property bought for CAD2 million – or CAD1.5 million for a property worth CAD10 million.

The levy will also apply to corporations purchasing property. While the British Colombia authorities will have the authority to examine the citizenship of directors of the relevant companies, and the beneficiaries of any corporate profits, though, Knight Frank notes that individual buyers will otherwise be required to self-report their nationality and provide a social insurance number.

“As yet it is unclear whether a resident with citizenship could buy a property by proxy for a family member living abroad,” notes the agent. Indeed, the exact methods of policing and enforcement are yet to be confirmed.

What is certain that Canada has long been concerned about foreign investment in its real estate. In 2014, the country scrapped an investor visa that was proving popular with Chinese buyers, which allowed them to apply for permanent residency, if they had a network of CAD1.6 million or more and invested at least CAD800,000.

The latest official figures show that foreign buyers purchased over CAD1 billion worth of property in British Colombia between 10th June and 14th July 2016, with the majority of activity accounted for by Chinese investors.

At the same time, Vancouver has also recorded significantly rising prices for the last four quarters in a row, according to Knight Frank’s global cities house price index, with prices up 26.3 per cent in the year to March 2016.

The new tax is aimed to cool foreign interest and deter buyers from snapping up real estate, thereby helping to cool house price growth. Revenue from the new tax is expected to be spent on housing affordability projects in the city.

Foreign buyers, though, still only account for a fraction of transactions: less then 20 per cent of sales between June and July. Nonetheless, with such a significant addition to the property purchase bill, the law is sure to have an impact upon foreign demand, with Bloomberg forecasting a 5 per cent drop in average prices across the whole of BC and as much as a 20 per cent drop in Vancouver.

Knight Frank also reports that the legislation, which must now be passed by the provincial legislature, will allow for the tax rate to be adjusted between 10 per cent and 20 per cent, should it be necessary, and also potentially expand it beyond Vancouver.

The news sees Vancouver join a growing number of markets that are attempting to curb foreign investment in their real estate and, as a result, help to cap price growth. Australia, Singapore, Hong Kong and Singapore have all introduced additional costs or taxes in recent years, or limited the type of property foreigners can purchase, while Dubai has also capped lending for overseas investors.