On Monday July 25th, 2016 the BC Liberal Government announced that effective August 2nd, 2016 foreign national non- residents that are purchasing or have not closed on a residential property in the Greater Vancouver Regional District will be subject to an additional 15% property transfer tax when title transfers.
The tax will apply to properties in Anmore, Belcarra, Bowen Island, Burnaby, Coquitlam, Delta, Langley City and Township, Lion’s Bay, Maple Ridge, New Westminster, North Vancouver City and District, Pitt Meadows, Port Coquitlam, Port Moody, Richmond, Surrey, Vancouver, West Vancouver, White Rock and Electoral Areas. Note: The additional tax does not apply to properties located on Tsawwassen, First Nation lands or land outside of the Regional District. Mission, Abbotsford and Chilliwack will not be affected.
While the new tax is said to produce a new cash flow for the government to help with affordable housing for local British Columbians, it applies to property transactions that are already firm and binding prior to the effective date of the new legislation. The impact on foreign buyers: foreign buyers will have to supplement the transaction completion with an extra 15% cash to close. They will not have expected this tax and may not have the cash to complete the transaction. This may create a chain reaction that affects local British Columbians. For example:
• An American couple moving to BC as a transfer for work, purchased a home in June 2016 (prior to any new tax announcements). It is a 2 bedroom townhome in Surrey, purchased for $400,000, they complete and take possession on August 10th.
• The American couple must supplement an extra $60,000 cash to close, in just 2.5 weeks. They may not be able to close, as contracted, due to this unforeseen new cost. They may not only lose the home but they may suffer financially by not being able to reside in BC in time for their job transfer from the USA. They also lose the deposit they would have paid on the home, and in the event that they cannot complete on the purchase, they may be subject to further litigation. This adds burden to an operating business in B.C relying on a unique and limited talent pool.
• The British Columbian that sold their home to the American citizen has purchased a condominium in the Okanagan as their long term retirement strategy and now they can’t complete on their firm sale with exposure to loss of their deposit and potential litigation. The person in the Okanagan that sold them the condominium now can’t generate the funds they need to move to this new home as contracted (with a nursing home) as they likely would lose their pre-allocated nursing home space – in limited supply.
• Conclusion: Poor implementation of a tax intended to benefit British Columbians, can very conceivably impact many more people than foreign national non-residents.
Fifth Avenue is urging our local MLA’s to appeal the new tax and have it apply to real estate transactions that were written after July 25th to avoid this “negative ripple effect”. The negative impacts to British Columbians of enforcing a new tax on real estate transactions where no prior knowledge or expectation for this tax existed is unacceptable. We urge you to contact your local MLA and request the government not to make this tax apply to retroactive transactions.
It should be noted that many global cities do have a similar foreign tax on property sales and/or restrictions on which properties foreigners can actually buy.
Fifth Avenue agrees with a tax if the funds received will contribute to affordable housing in regions where it is needed. London and Hong Kong for example both have a 15% tax for foreigner buyers that was implemented by their governments in April of this year. Metro Vancouver is still considered relatively inexpensive compared to other global cities with similar foreign taxes.
The new tax should have been implemented with appropriate notice to potential purchasers with an education on how the tax would be implemented as it relates to pre-sale purchase agreements.
Find the full details on this new tax from the BC Ministry of Finance here.
Final thoughts on affordability: The new tax does not address the root issue of today’s hot housing market! This market is a bi-product of a shortage of housing supply to adequately meet demand. We support government initiatives to speed up the housing approval process at the local municipal level. This can support a balanced market desired by the Government of British Columbia.