_Vancouver announces 15% tax for non-resident buyers

In an attempt to cool escalating house prices, the British Colombia Government approved a new tax for foreign buyers yesterday. The 15% foreign buyer tax will come into effect on 2 August 2016.

Kate Everett-Allen July 26, 2016

Vancouver has led the rankings of our Prime Global Cities Index for four consecutive quarters.

Prices in Vancouver increased by 17.3% in the mainstream market and by 26.3% in the prime market in the year to March 2016 and policymakers have been looking at ways to cool price inflation in recent months.

The new tax will relate to residential purchases in “Metro Vancouver” – an area that extends from Bowen Island to Maple Ridge/Langley Township.

What impact will the tax have?

In real terms the new tax will result in an extra CAD300,000 in property transfer tax based on a property bought for CAD2m by a foreign citizen. This figure will rise to CAD1.5m for a CAD10m home.

The latest government data shows foreign buyers — mainly from China — purchased more than CAD1 billion worth of property in British Colombia (BC) between 10th June 2016 and 14th July 2016, around 86% was located in the Lower Mainland.

The foreign buyer tax will also apply to corporations that purchase residential real estate and the BC Government has the power to examine the citizenship status of directors and the beneficiaries of corporate profits in deciding whether to add taxes.

According to the Finance Minister, the resulting revenue from the new tax will be spent on housing affordability projects.

Some loopholes exist and details as to how it will be policed remain unclear.

The tax itself relies on buyers self-reporting their nationality and providing a social insurance number, backed up by new auditing procedures and penalties. However, as yet it is unclear whether a resident with citizenship could buy a property by proxy for a family member living abroad.

Outlook

There is no doubt that the new law will cool sales volumes and prices as foreign buyers absorb the additional cost implications.

It is worth noting that the planned legislation also allows the BC cabinet to alter the foreign tax rate by between 10% and 20% at a later date and expand it to outside the Lower Mainland.

The legislature was originally recalled to discuss the merits of a tax on vacant homes, whilst the legislation provides an enabling power for such a measure, it is unclear at this stage whether the Government will go ahead with such a move.

Vancouver isn’t the only city where policymakers are trying to stem the flow of speculative capital into their local housing market.

Hong Kong, Singapore, Australia, Switzerland and Mexico have all taken steps either by imposing additional taxes or stamp duties, introducing a one-off fee or restricting where or what type of property foreign purchasers can acquire.

For more information on Vancouver’s new tax or to discuss any property interest you have in the city please contact Kevin Skipworth, Managing Director at Knight Frank’s residential associates in Canada, Dexter Associates Realty.