_Vancouver Budget update
Kevin Skipworth, Managing Director of Dexter Associates Realty, Knight Frank’s Partners in Vancouver provides his assessment of the latest changes.
What were the changes announced in the Budget?
1. The Property Transfer Tax (Stamp Duty) was increased from 3% to 5% on the purchase price above C$3,000,000 effective February 21st, 2018. This applies to all residential properties in the Greater Vancouver Regional District regardless of the contract date¹.
Kevin comments: “The market above C$3,000,000 has already been quiet in Metro Vancouver. With the majority of properties in that price range located in West Vancouver and Vancouver’s West Side, we have seen sales rates soften in the last two years, even prior to the introduction of the original foreign buyer’s tax in August 2016.”
2. The Foreign Buyer Tax was increased from 15% to 20% as of February 21, 2018 and expanded to areas outside of the Greater Vancouver Regional District (Capital Regional District, Fraser Valley Regional District, Regional District of the Central Okanagan, Regional District of Nanaimo).
See timelines for transitional rules: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/additional-property-transfer-tax#specified-areas
Kevin comments: For Greater Vancouver, the tax is not new. While an increase of 5% will influence transactions, the effect will be strongest in those areas that were previously outside the tax’s jurisdiction.
The latest data shows foreign buyers account for less than 5% of all sales according to the British Colombia Real Estate Association²
Overall, we expect the tax will continue to push buyers to the lower end of the market in Greater Vancouver. It may also push those buyers that moved out to areas such as Victoria and Nanaimo, to avoid the foreign buyer tax back to Metro Vancouver.”
Kevin adds: “However, whilst the new measures will have some impact on the real estate market, greater affordability may not prove one of the main outcomes. In fact, it may lead to a spike in demand for properties below C$1,000,000. A lack of supply in this market segment will put pressure on prices having an adverse effect on affordability.”
It will put greater pressure on prices below C$3,000,000. The biggest effect will be the lack of transitional rules for properties in Greater Vancouver – meaning any written contracts completing after February 20th 2018 will be subject to the increase.
3. A new speculation tax on vacant properties owned by individuals not paying income tax in British Colombia. The tax will be 0.5% of the property's assessed value in 2018 and increase to 2% in 2019, it will apply to the same all areas affected by the foreign buyer tax. The speculation tax will be applied to all properties that are not owner-occupied or qualify as a long-term rental property.
Kevin comments: “We expect to see some rental properties that have been empty being brought to the market as well as some additional supply from owners that decide to sell instead of renting in order to avoid long void periods and the resulting tax. It is not known how many properties may be affected meaning it hard to gauge the likely impact. It may turn investment away from those areas popular with second home owners such as Central Okanagan, which attracts buyers from Alberta.”
4. A rise in school taxes for properties valued at C$3,000,000 or more. Properties valued between C$3,000,000 and C$4,000,000 will be subject to a 0.2% tax and a 0.4% tax on the assessed value above C$4,000,000 beginning next year.
Kevin comments: “This will put further pressure on prices to sit below $3,000,000 as the layered taxes take their toll. The areas most affected are likely to be West Vancouver, Vancouver West and Richmond. Retired homeowners will feel the pinch as this will be a significant increase on their taxes - C$8,000 annually on a property assessed at C$4,000,000. While they have an ability to defer their taxes, some may choose or be forced to sell. This will add supply into a market with depressed demand.”
5. A database to track information on pre-sales and assignment of contracts from developers. In attempt to deal with money laundering and tax fraud, the Provincial Government will develop a database that will be shared with provincial and federal tax authorities. Additional information on beneficial owners of corporations will be required on property transfer forms and a registry of beneficially-owned properties will be established and made publicly available through the Land Title Office.
Kevin comments: “While the Provincial Government did not put any controls or added taxes in place for pre-sale (off-plan) sales, this measure may be the first step into looking at some sort of taxation or demand side measure on those type of sales. The provincial government has indicated that all the steps outlined are the beginning of measures to be put in place, and dependent on the reaction of the market.”
"Kevin adds: “The supply side of the real estate equation was mostly left untouched by the government for resale and brand new properties. There was language to aid in providing more purpose built rental and affordable housing (114,000 units over the next 10 years) along with commitments to student housing and allowing post-secondary institutions to borrow to build student housing. "
"Despite the new measures, the City of Vancouver is seen as a jewel for those living here and visiting. Nestled against the mountains and with the ocean on its doorstep and a climate that is the envy of the rest of Canada, it draws many people to visit and some to eventually relocate.
"The Winter Olympics of 2010 were one of the biggest advertisements for the region – showing both the diversity of the city and highlighting the fact that a world class ski resort sits only 90 minutes' drive away.
With Vancouver having the fastest growing population in Canada and one of the fastest rising in the world's developed nations, the need for homes will continue to be an issue going forward. The opportunities presented by Vancouver continue to resonate with buyers - domestic and international.
For more information on the latest property taxes and cooling measures please contact Kevin Skipworth at our partners Dexter Associates Realty.