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Verdict on B.C.’s year-old foreign-buyer tax still up for debate

HOUSING

Verdict on B.C.'s year-old foreign-buyer tax still up for debate

As experts debate what effect the tax has had, it faces a legal challenge and the prospect that a new government could either change or eliminate it, reports Frances Bula

Vancouver’s downtown skyline.

Kuni Takahashi and his wife thought they had escaped British Columbia's foreign-buyers tax last March, when the Liberal government tweaked its new law so that people coming to the province to work wouldn't have to pay it.

The two had already had to delay buying a place in Vancouver for almost a year. The 15-per-cent tax was imposed shortly after they arrived in Canada when the financial-reporting company Mr. Takahashi's wife works at transferred her to Vancouver.

So they moved quickly to buy once the law was changed.

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Related: B.C.'s NDP government will continue defending foreign-buyer tax in court

Related: Ontario takes aim at hot housing: 16 changes explained

"At that point, we figured it's safe to buy," said Mr. Takahashi, a former news photographer who now works as a cabinet-maker.

But the couple had a nasty surprise this month, when they got a call from an auditor in the province's finance ministry explaining that the two would still have to pay half of the tax, since only one spouse was in B.C. on a work permit. It meant an extra $85,000 that the two are still scrambling to find, as well as significant changes in plans for renovations at the house they bought on Vancouver's east side.

"That was quite a shocking discovery," Mr. Takahashi said.

The couple's story is just one more piece of shrapnel that has landed in unexpected places after B.C. introduced the country's first-ever tax on foreign home purchases.

The tax appeared to have a significant impact on foreign buying when it took effect on Aug. 2 of last year, but there was limited data to begin with and some of that activity has returned. It prompted a class-action lawsuit, from buyers who say they were unfairly hit with unexpected tax bills, that is still progressing through the courts. And the new NDP government, which has been skeptical of the tax from the beginning, hasn't said whether it will keep it or replace it with something else.

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In the meantime, the precise impact of the tax, if any, remains up for debate.

The New Democrats have proposed a different type of speculation tax to cool the market: a speculation tax of 2 per cent for property owners who aren't reporting income in B.C. At the same time, the government's partner in the minority legislature, the Greens, campaigned on a promise of raising the tax to 30 per cent and extending it to the whole province.

Finance Minister Carole James did not make herself available for an interview, but said in a statement that the government will be reviewing the foreign-buyers tax, along with other taxes and programs.

And the party is committed to carrying out its promise for a speculation tax.

"Over the months ahead, we will take action to deliver on our commitments by looking at ways to combat speculation that is distorting the housing market, including a speculators tax," said the statement.

However, the government plans to continue defending the foreign-buyers tax in court. The proposed lawsuit has not yet been certified as a class action; a hearing for that process is set for November.

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Elsewhere, Ontario, after saying a foreign-buyers tax was not in the cards, introduced one in April this year.

Analysts of Vancouver's real-estate phenomenon, coming from distinctly different perspectives, continue to debate what the impact of the tax is – if any.

“The bubble mentality here is very resilient.”

Josh Gordon, Simon Fraser University professor

Bryan Yu, the deputy chief economist at Central 1 Credit Union, argues the tax had a temporary impact on the market overall, more so at the high end.

But it's hard to tell exactly what happened, because there was a frenzy of buying as people rushed to get in before the tax took effect, says Mr. Yu, whose view reflects that of many mainstream economists and the real-estate industry.

The province started collecting data in June of last year, when about 10 per cent of purchases in the Metro Vancouver region went to foreign buyers. In July, that number jumped to about 15 per cent, and much of the increase appeared to be driven by a flurry of purchases at the end of the month as buyers rushed to beat the tax, followed by a plunge below one per cent the following month.

The proportion has hovered at around three per cent in the months since, though it's reached as high as 10 per cent in individual cities such as Richmond.

Since last August, said Mr. Yu, factors like B.C.'s strong job growth, the slight rise in the Canadian dollar, and the Liberals first-time homebuyer down-payment program have all played a part in the resurgence of prices and sales during the past year.

His view is echoed by people such as realtor Les Twarog, who is known for his detailed tracking of the condo market.

Mr. Twarog says there were 67 sales in Vancouver's ultra-high-end Shaughnessy neighbourhood last year between Jan. 1 and Aug. 1, with the average sale in the $8-million to $9-million range. Most of those were to offshore buyers.

This year, in the same period, there have been 17 sales, average price $6-million, and with few offshore buyers.

On the other hand, he said, he sees no change in the other layers of the market.

Then there are the analysts who have always maintained that foreign capital is the major cause of Vancouver's bizarre real-estate situation, which has resulted in home prices increasing at exponentially greater rates than local wages.

None of them expected a foreign-buyers tax to significantly change local real-estate dynamics on its own.

"The public perception is that it hasn't brought down prices and has had no effect," said Simon Fraser University professor Josh Gordon, a political scientist in the university's school of public policy. "But the slowdown in price increases is a positive."

Even before the tax was implemented, Mr. Gordon said it was unlikely to have a huge impact since it was not targeting all foreign money, much of which comes in with new immigrants who are not affected by the tax.

He and others have always said that the province – or country – would need to add many more measures: more investigation into the sources of money coming into the country; more rigorous pursuit of people avoiding capital-gains tax on their real-estate transactions; a more comprehensive tax that targets people not paying income-tax in Canada.

Mr. Gordon believes that, if the lack of dramatic impact from the tax proves anything, it's that people in Vancouver have a profound belief that the market will continue to rise.

That was helped in part, he says, by the Liberal government's moves to soften the impact of the tax by allowing people arriving on work permits to buy, which sent a signal to many that there would be more softening if they were re-elected.

"The bubble mentality here is very resilient," Mr. Gordon says. That's different from Ontario, where the introduction of the tax seems to have brought in some immediate and noticeable changes. (A sign again of the differences in analysis: Mr. Yu says the Ontario shift is due to the fact that the province brought in 16 different measures at once to cool the market, unlike B.C.)


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