The Good, The Bad and The Ugly of B.C.’s Real Estate Tax
Vancouver and Toronto are two VERY HOT real estate markets that has many people worried. As an active real estate agent in the Toronto market I am constantly asked “Is this a bubble?”, “When will prices drop?”, “How will my kids EVER afford a home of their own?” and the like.
There are many theories as to why this spike in prices is happening but for many they point the finger squarely at the influx of cash rich Chinese buyers. It’s said that they are getting their cash out of China while they can and putting it someplace safe which is Canada. We are one of, if not THE BEST place in the world to live. We have great health care, education, a solid economy and good employment. We are known worldwide as being polite and our global role is that of the peacekeeper. Face it, the world love’s us!
Let’s look at the impact from two perspectives, those in B.C. and those in Ontario. Let’s look at B.C. first.
The Good: The effect of the tax is being felt immediately. Sales of homes in B.C. have dropped noticeably. It’s the start of August so it could be seasonal but the effect of the tax can’t be discounted. The immediate cooling of the market should open up opportunities for Canadian buyers to buy property in a more balanced market, have time to shop around and ideally buy a home without the unknown of competition.
The Bad: The B.C. decision to slap an immediate 15% tax on foreign buyers was meant to quell the market there. What happened is the tax is indiscriminate and retroactive. As a result many home values have suddenly dropped, by how much is still to be seen. The impact will ripple through the market, perhaps ripple is too gentle a word, maybe tsunami is more appropriate, it’s still too early to say for certain.
The Ugly: Sellers who had deals to sell their home after Aug 3 are finding buyers walking away from the deal rather than spend another 15% on a home. It could be they can’t afford it, didn’t budget for it or they feel the value of the home doesn’t warrant another 15%. Canadian sellers who thought they sold their home and went out and purchased another home may find they can’t close and lawsuits will ensue. The question is, will the failed foreign buyers be found to take to court or will the Canadians be left to clean-up the mess?
Meanwhile in Ontario.
The Good: Many of these foreign buyers will flock to the GTA. Savvy buyers will be able to take advantage of this flood of cash and, buy up homes in advance to resell at a tidy profit or hold for investment. Sellers looking to retire and cash out of the market will benefit as their home prices go up even higher than before.
The Bad: Canadian buyers who already found the market too expensive to buy in will be immediately priced out of it as this influx of cash will push prices higher and faster than before. If it was a stretch before it will be out of reach soon.
The Ugly: Renters will see prices go up again forcing many to resort to overcrowding, moving back to Mom and Dad’s home or find their daily commutes going from an hour to several hours one way. Sellers will be even more afraid to sell not knowing what they can buy which will put a further strangle hold on inventory pushing prices to the astronomical.
The Bottom Line: Ontario is closely watching what’s happening in B.C. and should ideally be monitoring the results of the tax to see how, or if, a similar tactic could be used in Ontario. Those with cash will still be buying and the divide between homeowners and renters will widen dramatically. The governments need to do more to provide affordable house but without harming those who have already stretched their financial limits to become a home owner, be it condo or mansion or in between.
If you are looking to find ways to get into the market, or want to invest in real estate give me a call. I will be happy to discuss your individual situation and see what’s the right solution for your needs. There’s never an obligation, consider it a free education that could make a huge difference in your life.