Vancouver’s luxury market, already experiencing a downturn since 2016, will likely take another hit with the introduction of higher tax rates for foreign and luxury home buyers, experts say.
The provincial government of British Columbia on Tuesday announced a basket of measures as part of its 2018 budget; among them was a hike, effective immediately, on property transfer taxes for foreign buyers and buyers of $3-million-plus homes (US$2.36 million and above).
Starting Wednesday, tax rates for foreign buyers were raised to 20% from 15%, while all C$3-million-plus home purchasers must now pay 5%, instead of the current 3% property transfer tax.
Not only will these taxes be applied to homes in Metro Vancouver, but they’ll also be levied in the Capital Regional District, the Fraser Valley, the Central Okanagan and the Nanaimo Regional District.
More:Tighter Mortgage Rule Leads to Slow Start to 2018 for Canadian Real Estate
The taxes are expected to have a direct, negative impact on the area’s luxury markets, many brokers say.
"They are going to kill an already very, very slow market," said Brock Smeaton, a veteran broker with Royal LePage West Vancouver.
In West Vancouver, arguably the most expensive housing market in British Columbia and even across Canada, according to Mr. Smeaton, there were only 505 single-family sales in 2017, down from 817 in 2016. On busy years, it used to reach 1,000 sales.
The area’s homes, for which an estimated 80% to 90% of buyers are Chinese, have a starting price point of C$2 million (US$1.58 million) and an average price of over C$3 million, Mr. Smeaton said.
"The market has been extremely slow ever since July 2016, when the 15% foreign buyers’ tax was introduced," he said, "So far this year, only 18 homes were sold in the area, the lowest level on record since the 1980s; adding 5% transfer tax for foreign buyers will make it worse."
More:A Mansion on Billionaire’s Row in Vancouver Asks C$28M
In 2016, British Columbia imposed the extra 15% on foreign buyers in Metro Vancouver and hiked the "luxury home" tax rate to 3% from the previous 2%, amidst public outcry that foreign buyers pushed up home prices to levels locals couldn’t afford.
The New Democratic Party government was formed last May and promised to prioritize the housing affordability issues.
The new budget plan lays out "a comprehensive housing plan that introduces new taxation measures to tackle foreign and domestic speculation, to close loopholes and crack down tax fraud, and to stabilize housing prices," said Finance Minister Carole James in a news release.
A speculation tax, a levy onnon-resident property buyers who own vacant homes,will be revealed later this year.
However, while all of these taxes were put in place to improve housing affordability, they’re going to do just the opposite, said Dan Scarrow, vice president of Macdonald Realty, an affiliate with Leading Real Estate Companies of the World.
"They will slow down the luxury segment of C$3 million and above but increase competition for homes at a lower price range," he said.
More:Canada Morphs into ‘Condo Nation'
To Mr. Scarrow, the housing affordability crisis in Greater Vancouver was caused by a lack of supply. "We have many millennials living in the basement of their parents’ houses, but not many starter homes are being built. The supply constraints need to be alleviated," he said.
The British Columbia Real Estate Association, which represents approximately 23,000 realtors in the western province, took a similar stand.
"The new tax measures introduced by the government to ‘stabilize the housing market’ are unlikely to achieve the intended objective," the association said in a news release Tuesday.
"Additional taxes, whether targeted at foreign buyers or speculators, do not reduce the gap between when a housing project starts, and when it is available to purchase," it stated.