Just a mention of the real estate market in Vancouver has been enough to start heated discussions around the province over the past year. How much is truly driven by foreign investment? Is the astronomical spike in affordability sustainable? How will domestic residents afford to keep living there?
With an election around the corner, these questions have also been top of mind for the provincial government. In response to public concern, the province province employed a rule in May where foreign buyers must declare their citizenship on the Property Transfer Tax Form. Data gathered between July 10th and 14th showed foreign buyers spent $1 billion on residential real estate purchases in BC, 86% of that in the Lower Mainland.
For Canadian residents, Property Transfer Tax (PTT) in British Columbia is currently charged on the fair market value of a property at a rate of:
1% on the first $200,000
2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000
3% on the portion of the fair market value greater than $2,000,00
With a desire to address housing affordability which, based on the data, is partly attributed to foreign investment, the Province introduced a 15% levy on residential real estate purchases made by foreign nationals and foreign controlled corporations effective August 2, 2016. To put it into perspective, a $2,000,000 residential home purchase for a foreign investor will now come with a hefty $300,000 PTT payment, which would previously have been $38,000.
This new legislation extends beyond Metro Vancouver to the entire Greater Vancouver Regional District, but not to Vancouver Island or other areas of the province. That being said, south Vancouver Island is one of the primary areas the Province will be watching for effects of the tax. Finance Minister Mike De Jong has released the following statement: “Government can prescribe regulation in other areas where the additional tax would apply. The Province continues to monitor data on foreign investment and foreign ownership in B.C.’s real estate market.”
The funds accumulated from the tax are intended to go towards the new Housing Priority Initiatives Fund, aiming to make property purchasing and rentals for domestic residences more affordable and obtainable.
So, who will this new, some say hastily imposed tax impact? Will it have a positive effect on affordability in Greater Vancouver? Will it slow foreign investment altogether? Or will investors simply look to new markets, like Vancouver Island, to invest their money?