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At the beginning of August, British Columbia introduced an additional 15% property transfer tax on foreign buyers purchasing homes in the Metro Vancouver area.

Michael Campbell

Canadians and permanent residents of Canada are not subject to the extra fees, and properties in the rest of British Columbia outside of Vancouver are exempt.

This is the first time a tax for foreign home buyers has been introduced in Canada, and it’s not clear how it will affect the rest of Canada.

Foreign buyers could decide to snatch up properties in parts of British Columbia that aren’t subject to the tax, such as Victoria or Kelowna, or they may decide to invest their dollars in Toronto, exacerbating the city’s already red-hot housing market.

According to Brad Henderson, president and CEO of Sotheby’s International Realty Canada, Toronto and potentially other markets like Montreal will start to become more attractive, because comparatively speaking they will be less expensive.

“At the end of the day, the impact of the tax on foreign housing purchases in Vancouver remains to be seen. Perhaps it will work out exactly as planned in that city. However, what is playing out in Vancouver could well have unintended consequences across the country”, says Jeremy Kronick, senior policy analyst at the C.D. Howe Institute, in a recent Globe and Mail article.

Here are some insights from Michael Campbell, VERICO’s Economic Consultant.

“So the question is, will adding $600,000 in tax to the purchase of a $4 million home or putting an additional $1.5 million on a $10-million-dollar home be enough to discourage foreign buyers and send capital elsewhere? At this point we can only guess. But Toronto, Victoria – even Nanaimo could be beneficiaries if foreign investors turn their attention elsewhere.

Interesting to note that the Bank of Canada, the OECD, and CMHC are all worried about a property bubble while the municipal and provincial government seem determined to pop it.

Those who want lower prices better be careful what they wish for. History makes very clear that serious problems for the economic and financial system occur with sharp price drops in real estate not high prices.

As for affordability – record low interest rates and massive in-migration from other parts of Canada and internationally are still going to be the key variables for a demand that continues to far exceed new supply.”

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