October 28, 2016 / Real-Estate
On July 25, 2016, the government of British Columbia introduced a 15% foreign buyer’s tax. As of October 2016, the real estate market has shown some slowing signs that could be the results of the new foreign buyer’s tax. The real impact will be difficult to evaluate in the short term and we may never have clear data on the actual effectiveness of the tax. After reviewing data from the Real Estate Board of the Greater Vancouver, we can see how the Vancouver foreign tax may have little impact on the Real Estate Market.
Looking at the REBGV data, the number of sales have decreased in August and September by 26% and 32% respectively. Although the percentage is high, that decrease represents only a combined 2,000 sales. I say “only” because the Metro Vancouver area has a housing inventory of 891,000 households (census 2011) and it is important to keep that in perspective. The REBGV and Real Estate Boards across Canada only report on sales data to provide a benchmark of real estate pricing. It is a great tool to inform prospective buyers and sellers, but, it is generally too small of a sample (from a statistic standpoint) to inform an overall market.
If the foreign buyer’s tax accomplishes its desired objective, some analysts call for a significant price adjustment. Some even call for a 20% draw back from its peak. Again, reviewing data from the REBGV, a 20% draw back would result in a return to the benchmark pricing of January 2016 (detached benchmark). Arguably, if the analysts are right, buyers having purchased properties since January 2016 are the only ones having purchased at an inflated price. This would represent less then 3.5% of all households in the region. Let’s not forget that the 20% decrease would not result in a net loss for those homeowners unless they have to sell at the lower price.
The benefit of a price adjustment would be significantly greater then the impact of status quo. Real Estate growth and pricing is largely the result of population growth. Metro Vancouver is slowly losing competitiveness in Canada. Recently, billionaire Jim Pattison indicated that his companies were losing staff to other more affordable Canadian cities. Affordability in a very mobile economy is critical. The Vancouver foreign tax won’t damage the Real Estate market. In fact, it may be the bust needed for a future sustainable growth.
Continue reading: Inner City Redevelopment less impacted by new mortgage rules