With New 15% Foreign Buyer Tax, Vancouver Sales Cool

A new 15% foreign buyer tax has put the brakes on Vancouver’s hot property market, according to new reports released by Canadian real estate groups.

The 2016 Fall Market Forecast, released by Sotheby’s International Realty Canada on Wednesday, showed that the number of single-family home sales over $1 million declined 65% in August compared with the same month last year, while top-tier condominium sales were down 49%.

At the same time, luxury home sales over $4 million dipped 33% year-over-year to 27 units in July 2016, and dropped 46% year-over-year to 14 units in August.

"Following frenetic sales velocity and double-digit price gains in Vancouver’s $1-million-plus real estate market through the first half of the 2016, clear signals of self-moderation emerged over the summer," the report found.

In early August, the provincial government of British Columbia began imposing an additional 15% property transfer tax on foreign home buyers in Vancouver, as concerns grow about skyrocketing housing prices and the role that foreign buyers may be playing in that market. Some claim that Chinese buyers, in particular, have helped fuel price increases for high-end Vancouver homes.

More:For Foreign Buyers, Times Are Getting Tougher

Since the implementation of British Columbia’s ’s foreign buyer tax, other major markets in Canada,—including Toronto, Montreal and Calgary—have seen signs of an uptick in interest from international investors.

"Vancouver’s record-setting sprint will return to a more moderate pace, but Toronto’s market cadence is set to accelerate," said Sotheby’s International Realty Canada president and CEO Brad Henderson in the company’s fall forecast. "We are going to see a clear divergence between their performance this fall."

However, housing affordability in Vancouver remains a critical concern. "Recent policy measures are not expected to significantly dampen real estate prices this fall," according to the report.

There is also a regional shift of focus within greater Vancouver. D'Arcy Harris, an agent with Sotheby's, said that "the tax is only in the lower mainland, so we're seeing a lot of buyers here [in Victoria] who would have otherwise looked in Vancouver."

Victoria’s luxury market has performed strongly since the new foreign buyer tax was introduced. There is an increased awareness of Victoria real estate as an investment opportunity for buyers from mainland China, Mr. Harris said.

Separately, the latest report by the Real Estate Board of Greater Vancouver (REBGV) shows that residential property sales in metro Vancouver totaled 2,489 in August 2016, a decline of 26% compared to the 3,362 sales in August 2015. Compared to July, August sales also represent a 22.8% decline.

From a historical perspective, last month’s sales were 3.5% below the 10-year sales average for the month.

"The record-breaking sales we saw earlier this year were replaced by more historically normal activity throughout July and August," Dan Morrison, REBGV’s president, said in the report.

Meanwhile, the luxury segment has seen a sharper drop. Sales of homes over $1 million fell from 31% of sales in July to just 24% of total REBGV sales in August. There were 67 sales of homes over $3 million in August, or 2.7% of total sales—down from 4.4% of total sales in July.

The Vancouver market has been slowing since the spring, with sales of single detached homes and other high-priced products declining at a faster pace than other categories, said Brendon Ogmundson, an economist with the British Columbia Real Estate Association.

"The implementation of the 15% tax in August likely accelerated a trend that was already underway by both discouraging purchases by foreign investors, as well as introducing uncertainty for domestic buyers and sellers," he said.

  Write to Fang Block at fang.block@dowjones.com