Blog

How’s the 15 percent foreign buyer’s tax affecting the real estate market?
This is the most commonly asked question that I hear recently.

On July 28, 2016, BC passed the legislation to implement the 15% foreign buyer tax on all residential properties. Anyone who aren’t Canadian citizens or don’t have permanent resident status in Canada will have to pay this tax when buying residential real estate.

To answer the above question, we always look at the Sales Ratio Percent which is an indicator of:

SUPPLY. DEMAND. PRICE

The Sales Ratio (Sales-to-Actives-Ratio) is:

• Percent of which the current inventory of homes are selling
• Sales for the month (demand) ÷ active listings (supply) = percent of homes selling

For example

• 10% sales ratio = 1 in 10 homes are selling
• 50% sales ratio = 1 in 2 homes are selling

When the sales ratio is 20% or more, it is a seller’s market and there will be upward pressure on price.

A buyer’s market is when the sales ratio is 12% or less, and there is downward pressure on price.

As of August in Greater Vancouver, the sales ratio is 27% which indicates there is more demand than supply and it is a seller’s market.

The Sales Ratio has peaked at 61% in March 2016 and is heading toward a more balanced market (see graph below):

The Real Estate Board of Great Vancouver reported that: “Metro Vancouver home sales return to typical August levels”

The HPI benchmark price in Greater Vancouver, on the other hand, has been increasing despite the normalizing of Sales Ratio since March 2016 (see graph below):

If we look closer by breaking down the data into different property types, we see that the single family home market has cooled down with a Sales Ratio of 14% in Greater Vancouver in August 2016 (see table below). This means the single family home market is in a balanced market and the price has flattened. The HPI benchmark price of single family home in Metro Vancouver has decreased $1,000 from $1,578,300 in July to $1,577,300 in August. The days on market (DOM) has also increased a little bit but it is still selling quite fast in just 15 days.

	HPI Price July	HPI Price August	DOM (Jul to Aug)	Sales Ratio (Aug2016)
House	$1,578,300	$1,577,300	13 to 15	14
Townhouse	$669,000	$677,600	9 to 10	42
Condo	$510,600	$514,300	10 to 11	48
Metro Vancouver	$930,400	$933,100	11 to 12	27

On the other hand, Sales Ratios for townhomes and condos still remained in the 40s percentage points which indicate hot sellers market.

We probably will not see any significant price drop in real estate as long as the Sales Ratio remains above 12%. Below 12% we will start to see a downward pressure on price as we have seen before (see article here).

There is an interesting phenomenon that we see. As the real estate price increases, while the demand remain strong, people who cannot afford to buy single family houses began to buy townhouses. Last month, we are seeing an even stronger demand in Condos than townhomes now that the price kept increasing.

If we look at the above data by area, take Vancouver East, for example, we see that the Sales Ratio for houses is only 12.6%, while townhome remain pretty strong at 36.7% and the demand for condos even stronger at 59.9% (see graph below).

With the low interest rate staying low and Vancouver being one of the most livable place on the planet, people still want to own homes here. If not houses, or townhouse, a condo is just fine as long as we can live in this beautiful place.

Since foreign buyers only accounted for 5.1% of real estate sales in Greater Vancouver (see article here), the government probably should consider other factors that affect affordability. Some interesting articles here:

Land-locked region: Is geography a factor in Vancouver’s affordability crisis?

Is Vancouver’s real estate market really in free fall?

If you’d like to find out how the market is doing in your specific neighborhood and property type, don’t hesitate to contact Jordan or Jenny to find out! We’d love to chat with you.

On July 7, the BC government released the first set of data that show foreign nationals make up only 5.1% of home buyers in Greater Vancouver (see article here).

On July 28, the BC legislature passed legislation to implement a 15% foreign buyer tax on all residential properties effective August 2, 2016.

Anyone who aren’t Canadian citizens or have permanent resident status in Canada will have to pay this tax when buying residential properties in the region. The tax also applies to foreign-controlled corporations which are any corporation not incorporated in Canada, or are incorporated in Canada but controlled in part, or wholly, by a foreign national or corporation.
Under the new tax, a foreign buyer or foreign-controlled entity will pay an additional $150,000 in tax on a $1 million home.
The tax applies at the point of registration at the Land Title Office, regardless of when the contract was signed.

For more information:
Read the government announcement here.
Read the government’s tax information sheet here.

Government Announces Additional Property Transfer Tax

The government also announced a new additional property transfer tax on residential property transfers to foreign entities in the Greater Vancouver Regional District.

The additional tax will apply to all applicable transfers registered with the Land Title Office on or after August 2, 2016, regardless of when the contract of purchase and sale was entered into.

To find out more about these recent changes:

• Ministry of Finance Tax Information Sheet
• Additional Property Tranfer Tax Return
• BC Land Title & Survey

More news:
Barry Appleton: B.C. just violated NAFTA with its foreign property tax — and we could all pay for it

VERICO’s Economic Consultant Michael Campbell on the new BC Property Transfer Tax Targeting Foreign Buyers

Housing affordability and foreign buyers are some of the hottest real estate topics right now. Today, the BC government released the first set of data that show foreign nationals make up 5.1% of home buyers in Greater Vancouver.

This confirms the data collected from realtors by the Real Estate Board of Greater Vancouver through its monthly member survey. Click here to read more “Is there a typical home buyer in Metro Vancouver?”

The provincial government will continue to release foreign buyer data each month. The data are collected when owners register their properties at the Land Title Office and when Property Transfer Tax is paid.
Click here to see the current set of data from transactions occurred between June 10 and June 29, 2016.
Additional findings include:

• 10,148 residential real estate transactions in BC, totaling more than $7.6 billion.
• 337 transactions (3.3%) involved foreign nationals, worth $390 million (5.1%).
• In Metro Vancouver, there were 5,118 transactions worth nearly $5.4 billion, of which 260 involved foreign nationals (5.1%), worth $351 million (6.5%)

• In the City of Vancouver, there were 1,139 transactions, totaling more than $1.6 billion. 47 of these involved foreign nationals (4.1%), worth $64 million (3.9%).

Click here to read about neighborhoods with the most expensive homes in Vancouver West

Before May 16, 2016, all contracts of purchase and sale are assignable. After May 16, 2016, all residential real estate contracts of purchase and sale are required to include a clause to prevent assignment.

The government passed this legislation in order to prevent people from buying a home and then assigning the contract to someone else in a few months because the price has risen so much that they can sell it right away for a profit.

What does this new legislation mean for you if you are just a regular buyer?

If you are writing an offer in your own name and later would like to add your husband or wife to the title, now you better plan ahead and include your partner’s name in the offer and add an additional notice to the seller about this partial assignment (assigning part of the ownership to another person).

If you have an accepted offer and before the completion date, you have to move because of a job transfer, before May 16, you can assign the contract to another buyer and take a profit in this booming market for your foresight to buy at the right time. But now, you have to renegotiate with the seller to let you assign the contract (the seller has all the negotiating power now so if you are the seller good for you) or just buy the property first, pay your property transfer tax to the government and then sell it (and the buyer can pay the property transfer tax again).

Interestingly, this assignment prevention clause is only for resale residential real estate only.
This new legislation does not apply to developer’s contracts if you are buying presales or commercial real estate.

At the end of 2013, the sales to actives ratio in Vancouver East has reached 20% indicating a seller’s market and it started to have an upward press in home price.

In the middle of 2014, the ratio reached 20% in Vancouver West. At the beginning of 2015, Great Vancouver and Richmond’s ratios also increased to above 20%

In 2016, the ratios just keep increasing. Is there any sign of slowing down?

We are still seeing multiple offers everywhere this year.

It is all about SUPPLY and DEMAND.

For example, the “Total Active Listings” in April this year was 590 while it was 802 the same month last year. There has been 26.4% decrease of available homes for sale this year while the number of completed “Sales” stayed relatively the same as indicated in the table below.

It means this year, about the same number of buyers are fighting for less available homes especially for the single family homes. And this is why there are still multiple offers.

 

Now some people are being pushed out of the market for single family houses where the median sales price just reached $3,000,250, we seeing the sales to actives ratio for townhouses and condos are jumping much higher than single family homes.

See table below that the Sales/Active Ratio is 28% for detached houses, 49% for condos and 46% for townhomes. And the ratios have increased for the second month in a row for townhouses and apartments.

We asked real estate veterans who have experienced the many ups and downs of the real estate cycles, where is real estate price going in the near future?

They say to watch the Sales to Actives Ratio everyday. And if we see more and more price reductions, it may indicate that the market is slowing down. But so far, the Sales/Active Ratio is still very high showing a strong seller’s market and we are not seeing many price reductions yet.

 

 

Click on the graph below to see neighborhood with the most expensive houses based on the Benchmark Price as of April 2016 and areas with the most percentage increase in price. Also the locations of the top public and private high schools.

 

Click on the table below to see the data used in the above graph.

According to the REBGV News Release, home sales in Greater Vancouver last month were 56% above the 10-year sales average for the month.

“March was the highest selling month the REBGV has ever recorded,” Dan Morrison, REBGV president said. “Today’s demand is broad based. Home buyers are active in neighbourhoods across our region.”

“Strong job and economic growth in our province, positive net migration and low interest rates are helping to drive this activity,” Morrison said.

Ottawa is spending $500,000 to help understand the role of foreign homebuyers in the country’s housing market.

The cash in the federal budget is going to Statistics Canada to help develop methods for gathering data on home purchases by foreign buyers.

The government says comprehensive and reliable data on the number of homes sold to foreign buyers does not exist right now.

The plan may involve collaboration with the provinces, including British Columbia, which recently announced plans to have homebuyers disclose whether they are citizens or permanent residents of Canada or another country.

Many believe the Vancouver housing market has charged ahead in recent years due to an influx of wealthy foreign buyers.

But according to Bob Rennie of Rennie Marketing, Vancouverites over 55 years of age are sitting on billions of real estate. They bought their homes decades ago and now they are getting ready to retire. They sell their multi-million dollar homes and downsize to high end luxury condos within Greater Vancouver (vs. the trend of moving to the suburbs before). These older local homeowners will have money leftover to help their children or grandchildren buy their first homes. According to stats by RBC, over 55% of first time home buyers have help with their downpayment from relatives.

In addition, due to the drop in oil prices, a lot of people are moving from Alberta to BC in search for jobs.

Bob Rennie reminded us to look at the whole Greater Vancouver when raising questions about affordability and sustainability. He said there are no more land to build within the desirable Vancouver Westside but we still have a lot of options outside of Vancouver.

• A 3- bedroom home on standard lot in Kitsilano sold for a record-breaking $4.23 million, $735,000 over asking. Kitsilano house sells for $735,000 over asking price in record-breaking $4.23-million deal
• A shabby, little tear-down in Grey Point sold for nearly $2.5 million, $800,000 over asking Vancouver teardown in Point Grey sells for almost $2.5M
• A new Angus Reid survey suggests nearly 60% of urban Canadians feel home prices in their neighbourhoods are high or unreasonably high.

According to a Real Estate Board of Greater Vancouver Report, February 2016 was the highest selling February on record for the Metro Vancouver housing market, a 56.3% above the 10-year sales average for the month.

“We’re beginning to see home listings increase as we head toward the spring market, however, additional supply is still needed to meet today’s demand,” REBGV president McLeod said.

The sales-to-active listings ratio for February 2016 is 57.2%.

Analysts say home prices often experience upward pressure when it reaches the 20% to 22% per cent range in a particular community for a sustained period of time. The Sales-to-Active ratio has been above 24% since February 2015.

We are seeing single family houses and townhouses being sold for more than the tax assessment values. One mortgage specialist commented that he’s seen price that is as high as $1 million dollars above the tax assessment price for a house!

Where is the market heading? Only time will tell. In the meanwhile, we will keep track of the sales-to-active listings ratio to have a gauge on the supply and demand for housing in Greater Vancouver.

The BC Minister of Finance has announced several changes to the Property Transfer Tax program, effective Feb 17, 2016, which include:

• a property transfer tax exemption for Canadian citizens and permanent residents who purchase NEWLY-built homes (not resale homes), condos and townhouses under $750,000.  Purchasers must live in the property for at least one year. This is a potential savings in closing costs of up to $13,000;
• a partial exemption is available  where the fair market value is over $750,000 but less than $800,000. If the price is $800,000 or more, PTT is payable on the entire price.
• a one percent increase in property transfer tax to three percent for homes which are sold over the $2 million mark:

1% on the first $200,000,
2% on portion between $200,001 and $2 million,
3% on the portion of the fair market value greater than $2,000,000.

• this rule also applies to commercial property purchase;
• the first time home buyers exemption will remain in place for homes under $475,000;
• buyers will need to start disclosing their country of residence in all property transactions;
• the beneficial ownership of properties held by corporations will also be tracked;
• the Ministry will send a letter to the purchaser at the end of the year to confirm compliance.

For more information, visit the BC government’s website.