After many, many months and years of reading headlines about foreign buyers snapping up real estate in B.C, the very public discourse finally ended this summer with the introduction of a property transfer tax on residential properties. The B.C. government hit foreign entities with an additional 15% applied to all title transfers registered on or after August 2, 2016, and this additional tax must be paid “regardless of when the contract of purchase and sale was entered into.”
Surrounding all the hubbub in the press however, were very real situations on the ground for a number of buyers who did not expect the new tax to affect them. For example, a young couple with whom I had been working on a closing came to me stymied by how they were going to come up with another $45k in a matter of a couple weeks. And they’re not the only ones who were taken by surprise.
While the new tax itself has made headlines all over B.C., what is not currently being talked about is how desperate buyers who were in the middle of a legitimate transaction are expected to raise these funds–or face a penalty. The 15% tax, a huge amount by almost any standards, cannot be added onto the mortgage. As a result, this is liquid assets that need to be available to the future homeowner. It’s one thing to tack another 30, 40 or even 50k onto an already existing mortgage, but for a lot of people (yes, even foreign buyers) this is beyond the scope of what is available to them in cash.
There has also been a lot of confusion about what qualifies as a foreign entity. Essentially, it includes foreign nationals who are not Canadian citizens, as well as those who have had their application to become a permanent resident approved, but still do not have permanent resident status. In other words, even those who have every intention of living and working full-time in Vancouver will be affected if they’re one of the unlucky bunch whose papers weren’t stamped in time. Like it or not, even those here under refugee status will be required to cough up the extra dough.
For many, the only silver lining is that the 15% tax is applicable only to the Greater Vancouver area, with the notable exception of properties located on Tsawassen First Nation lands. As per the Ministry of Finance Tax Information Sheet, the districts affected include:
Anmore, Belcarra, Bowen Island, Burnaby, Coquitlam, Delta, Langley City and Township, Lion’s Bay, Maple Ridge, New Westminster, North Vancouver City and District, Pitt Meadows, Port Coquitlam, Port Moody, Richmond, Surrey, Vancouver, West Vancouver, White Rock and Electoral Area A.
For foreigners who have already planted roots in Vancouver however, the new tax will be a huge obstacle towards homeownership they will have to overcome. But for those who haven’t yet purchased, it might just be the incentive they need to look into less saturated markets and more remote areas.
Until now, foreign buyers and non-residents have been largely focused on areas such as Burnaby, Surrey, and West Vancouver. As a result, there is a real possibility that rather than prevent these groups from purchasing homes in Greater Vancouver, the new tax will simply push them into districts that, until now, have been ignored. Whether this would have a positive or negative effect on other districts is anyone’s guess, but it does look like the most likely scenario. Particularly for those interested in buying a retirement property, vacation home, or remain a non-resident, if there is no immediate reason to live in the GVA, there are any number of equally attractive communities all along the west coast.
It will be interesting to see what the effects of the new tax will be, and how it will contribute to shaping the real estate market along the west coast of Canada. The only thing I’m sure of is that there won’t be any shortage of headlines in the meantime.