Status quo
The province’s latest data dump regarding the origin of buyers showed that the recent hike in the property transfer tax for foreign nationals had the desired effect of slowing sales to non-locals – but a glance at the big picture shows that the needle has yet to move.
Foreign participation in the Metro Vancouver residential market dropped from 13.2% of all transactions between June 10 and July 31 to just 0.9% in the month of August, but participation during the entire period from June 10 to August 31 stood at 9.3%. That’s virtually unchanged from the rate of 9.7% that the province used as the basis for raising the tax, based on sales between June 10 and July 14.
Moreover, sales to foreign buyers within Metro Vancouver continue to occur primarily outside the city of Vancouver: as of July 14, 74.6% of Metro Vancouver sales occurred outside Vancouver, and the latest figures show that 74.3% of sales in the region through the end of August occurred outside Vancouver.
Pricing the impact
As more transaction information becomes available, debate will centre on whether a higher tax on purchases by foreign nationals will have the desired effect of making housing more affordable for locals.
Speakers on a recent Urban Development Institute panel were uncertain.
“This policy shock, in my view, will play out over the next three to six months,” said Helmut Pastrick, chief economist with Central 1 Credit Union.
Pastrick expects transaction volumes and average sale prices to drop dramatically when the Real Estate Board of Greater Vancouver releases its September statistics this week.
But with strong fundamentals underpinning the market – including low interest rates and steady job growth – Pastrick doesn’t expect a sustained impact on prices.
“It’s a temporary market disruption, and I think after the market has absorbed this new tax regime,” he said. “I expect prices to continue to rise and they’ll be higher this time next year.”
Urban Development Institute (UDI) president and CEO Anne McMullin believes the tax will have a limited long-term impact on affordability.
Indeed, the greatest impact might be on sales of properties most renters and first-time buyers don’t consider.
“It’s disproportionately going to affect the single-family home market,” she said.
McMullin and other industry sources note that condo presales remain strong. Approximately 30,000 units have been presold across Metro Vancouver.
UDI estimates that approximately 3.5% of these sales might be to foreign buyers, suggesting that 1,050 sales could be vulnerable to the new tax.
However, many buyers expect to achieve permanent residency by the time the sales close, limiting the impact of the tax.
And for any foreign nationals who were buying them as investments with a view to renting them, the impact of the tax will fall on local tenants who could face higher rents as owners aim to mitigate the tax’s impact.
