Foreign Buying Plummets In Vancouver: Sales To Foreigners Crash 96%

Tyler Durden's picture

China's favorite offshore money laundering hub is officially no longer accepting its money.

According to data released by British Columbia’s Ministry of Finance on Thursday, foreign investors officially disappeared from Vancouver’s property market last month after the local government imposed a 15% surcharge to curb a record-shattering surge in home prices. Overseas buyers accounted for a paltry 0.7% of the C$6.5 billion of residential real estate purchases in August in Metro Vancouver; this represents a 96% plunge from the seven weeks prior, when foreigners were responsible for 16.5% of transactions by value.

According to the latest data overseas buyers snapped up C$2.3 billion of homes in the seven weeks before the tax was imposed, and less than C$50 million in the next four weeks. The government began collecting data on citizenship in home purchases on June 10. The ministry said auditors are checking citizenship or permanent residency declarations made by buyers and also reviewing transactions to determine if any were structured to avoid tax (spoiler alert: most of them were).

Across the province, the participation of foreigners dropped to 1.4% of transactions by value in August, from 13% in the preceding seven weeks.

Prior to the new real estate tax home prices were almost double the national average of C$473,105; however we expect a sharp corretion in the coming weeks - as we pointed out at the beginning of September, the average price of detached Vancouver properties promptly crashed following the news tax, dropping 17% on the month, and 0.6% on the year, to C$1.47 million ($1.13 million) in August, wiping away one year of gains in a few weeks.

As Bloomberg notes, the plunge in foreign participation joins other signs of a slowdown in Canada’s most expensive property market. 

The silver lining is that while transactions may have ground to a halt, the government did pick up some extra tax revenues: British Columbia has raised C$2.5 million in revenue from the new levy since it took effect. Budget forecasts released last week indicated that the Pacific coast province expects foreign investors to scoop up about C$4.5 billion of real estate through March 2019.

That may prove optimistic, because as reported two weeks ago as Chinese buyers wave goodbye to Vancouver, they have set their sights on another Canadian city: Toronto.

According to the Star, sales of $1-million-plus Toronto-area single-family homes rose 83% year over year in July and August. That’s 3,026 homes, with 55 per cent of them inside Toronto’s borders.  That’s not entirely surprising given that the average cost of a detached home in Toronto was about $1.2 million, said Sotheby’s CEO Brad Henderson.

“While $1 million is still a considerable amount of money, it’s difficult to find a single-family home in the city of Toronto for less than $1 million and it is not uncommon to find homes in the $2-million, $3-million or even $4-million-plus range,” he said.

Sotheby’s says sales of homes in the $4-million-and-up category rose 74 per cent in the region and 58 per cent in the city in July and August. Sotheby’s said it expects Toronto’s luxury market to take the lead among Canada’s cities, outpacing Montreal, which probably will become a target for investors from Europe, China and the Middle East.

“What the (Vancouver) tax introduced is . . . some uncertainty as to what other policy issues the city or the province may introduce, which would adversely affect investors,” Henderson said, adding that  investors are looking elsewhere, including cities outside Canada.

“But, if they are looking in Canada, we believe Toronto will be the most logical place for people to consider. Montreal and Calgary will probably also get a look-see,” Henderson said.

Or maybe not.

As CBC reported earlier this week, economist Benjamin Tal of CIBC said that Ontario will have little choice but to copy Vancouver and implement a tax on foreign house buyers.  In a recent note to clients, the economist said the biggest problem facing policymakers with regard to hot housing markets in Toronto and Vancouver is a limit on the supply of new homes.

"The main reason behind higher prices in the [Greater Toronto Area] is a policy-driven lack of land supply," Tal said. "And with no change on that front, policymakers have to use demand tools to deal with what is essentially a supply problem."

Tal doesn't speculate how much of a tax could be under consideration for Toronto, nor does he have any insight as to when and how it might be implemented.

A foreign buyer tax is not the only possible response to the problem of high house prices. Among other possibilities, Tal cites:

  • Compelling banks to tighten their lending practices by making them pay for their own mortgage insurance.
  • Raising the down payment minimum to 10 per cent, even for homes under $1 million,
  • Closer monitoring of lending to subprime buyers.
  • Offering tax incentives to developers to make more purpose-built rental buildings, including more flexible rent control rules, as ways of cooling Toronto's housing market.

Tal says Toronto's housing market has been inflated by cheap lending to people who would have no business getting a mortgage if rates returned to more typical levels.

Of course, if Toronto does what Vancouver did and tries to spook away foreign buyers, the housing bubble will simply keep jumping city to city, first in Canada, then in move to the US, and back over to Europe, until soon the entire world makes it clear that China's $30 some trillion in deposits that are just itching to be parked offshore are no longer welcome, forcing the Chinese government to finally deal with the alarming consequences of its own unprecedented monetary injections, which now amount to some $4 trillion in new money creation mostly by way of bank "loans" (and thus deposits) every single year.

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tarabel's picture

 

 

The laws of economics roll on.

If you want less of something, tax it.

If you want more of something, subsidize it.

 

I remember when Fort Lauderdale got sick of all the kids out on spring break and ran them all off.

Then realized that their tax base had just been destroyed and begged the little tykes to come back and play.

But everybody goes elsewhere now.

Manthong's picture

Yeah, sumtin’ don’t seem right …

Since when would a lousy 15% tax stop a Chinese gazillionarie from buying some digs in the tropical paradise of Vancouver?

oops's picture

The entire western world will experience KARMA for the Greatest Injustice of the 20th Century. http://wp.me/p4OZ4v-19

CheapBastard's picture

So where do those money launderers go when Toronto passes the 15% tax?

Lore's picture

Typical wrong-headed progressivist government "seen-to-be-doing-something" initiative.  This is of little consequence to big wealth.  The people who're taking the biggest hit are local middle class chumps who hyper-leveraged on the way up and now are sitting upside-down on their mortgage post-market peak, with huge payments and a home worth less than the mortgage and still falling in value thousands of dollars every month.  It's always the same: government gets involved, disrupts the corrective mechanism, and you're left with a cohort of bagholders.  Expect the same in Toronto. 

Do the progressivists express regret?  Hell, no!  They're cooking up more ways to punish capital:  "Offering tax incentives to developers to make more purpose-built rental buildings, including more flexible rent control rules, as ways of cooling Toronto's housing market."  The bubble was built on privately-owned single-family residences because that's what families wish for, not rental shoeboxes, so what do you do to quash a bubble permanently, according to idiot logic? Build more of what people DON'T want.  Fucking brilliant, motivating your remaining tax base to leave behind blocks of multistorey Agenda 21 shoebox ghettos.  Toronto leads Vancouver in that regard.

The people who really NEED to be brought to justice are the "lenders" who gave credit to mouth-breathing knuckle-draggers, and "realtors" who facilitated this bullshit with their bag of tricks (e.g., multiple title Xfers inside a single transaction):  greedy little system-gaming sociopaths.  And what can you say about regulators? 

Handful of Dust's picture

Lenders need to be local AND keep at least 50% of the loan. Also, we need for borrowers to put 20% down so everyone has a stake in the deal.

 

Otherwise you get these distortions that will eventually collapse. Too bad losses are passed on to inncoent taxpayers hwo nothing to do with the deal to begin with. It's mostly governments fault [as you say], namely, corrupt politicians since they allow all this to happen while they line their pockets.

Also, imo, foreign buyers need to be taxed more heavily then 15%, maybe 20-25% as well as stricter control of money laundering.

pitz's picture

Money laundering actually would be a good thing, as it would imply money is being brought to the table.

 

But as it stands, most transactions over the past few years were basically locals "pac-manning" as much property as they could, on credit.  Foreign participation was minimal, and foreigners may very well have been significant net sellers. 

pitz's picture

They go nowhere because "they" never existed.

The Real Tony's picture

The tax wil either be on the GTA or the entire province of Ontario. Very few chinks buy in Toronto just stupid white people who just like in Vancouver will end up losing most of their money by chasing something where all the fundamentals are negative. Chinks only chase what's highest in value so when gold hits $5,000 an ounce and silver crosses the 100 dollar an ounce mark then the chinks will all flock to gold and silver at that point in time. Chinks never buy into any market that's falling. Chinks all do the exact same thing.

pitz's picture

Chinese haven't been buying in Vancouver for years.  They aren't that stupid.

saveUSsavers's picture

but the ARSEWHOLE REAL ESTATE AGENTS said "the tax doesn't matter to these buyers..." right? Rot in hell, arsewholes

Usura's picture

What a retarded article.  I'm surprised there are any "foreign buyers" reported in the latest statistics.  They should add a new categrory next month: Straw Buyers

silverer's picture

Kind of like the iPhone 7. Well, maybe more like the iPhone 6. The 7 never really got off the ground.

flaunt's picture

This seems to be part of the sell out of the West.  Taken to its logical conclusion, foreigners will end up owning all the productive assets of the West while Westerners are gutted and stabbed in the back economically, unable to afford properties in their own countries due to the tidal wave of cheap money coming home to roost.  If the US doesn't get a real government this election, there will be nothing stopping this trend from continuing and accelerating until the masses are homeless and foreigners own everything.  Hillarys 65% estate tax will make sure those with the wherewithal to stand against this tidal wave of corruption will finally cave in, sell all of their assets to the highest foreign bidder, and leave America forever, which ensures the completion of the evil agenda of the Obama/Hillary/Bush crime families partnered with the NWO cabal to turn America into a 3rd world shithole that will then be easily controlled and manipulated just like any other 3rd world shithole.  We need new words to describe the level of betrayal, backstabbing, murderous intent, heinous rage, complete and total wickedness on the part of this small group of global criminals.  And we need to invent new punishments to match this level of vicious attack on humanity.

Dassey4FedChair's picture

Well said. One more thing to add to the estate tax is global income that was introduced in 2012. As a US citizen living abroad the borg still demands I file with the IRS every year and pay everything over the outdated exemptions. Most people I tell don't believe it. You can check out any time you like but you can't ever leave 

neidermeyer's picture

New Jersey has a real estate tax that kicks in if you sell and leave the state... You can't afford to live there and pay the taxes and if you leave they hunt you down and sue you.

1033eruth's picture

Need better details on that.  If any state has a real estate SALES tax, then it is taken out at escrow.  You can't avoid it.  There is no chasing down and suing you.  Besides states don't sue, they place liens on your property.  CA is the champion in pursuit of tax avoiders.  For that matter, they chase you across state borders for child support too.  

pitz's picture

It would be great if foreigners would come to Vancouver and actually buy.  But they generally aren't dumb enough to buy assets that are so overpriced that I don't even think we can calculate a P/E.  Truthfully China is coming for the productive assets of Canada like the mines, the oil, etc. which is priced at a severe discount (in many cases, at or beneath "book" value which is dramatically less than depreciated replacement value!)  Not overpriced Vancouver RE, which is almost entirely being picked up by local credit buyers.

keep the bastards honest's picture

No, its money laundering. Thats why houses are left vacant.  Same is happening in Australia. Homes are too expensive for young people (ie 2 professionlas eg doctor and barrister) to by a 2 bedroom train shaped hovel at 1.7 million and get to work. Real estate agents have expos and  offices in Beijing etc promoting buying. Itsd appaling, a generation  who cant afford have kids the chinese can.

pitz's picture

The problem was, there was little evidence of 'money'.  Tons of credit buying of those properties, but very little cash brought to the table.  "Money laundering" historically doesn't high ratios of credit associated with it.

The 'bagholders' are the local speculators and their bankers.  "Chinese" are not that stupid.

The Real Tony's picture

99.999999999 percent of the foreigners are Chinese. The Chinese only buy things that are grossly overpriced and in the end lose virtually everything. This is something the white population in Vancouver who copied the chinks are just learning the hard way.

saveUSsavers's picture

EVERYONE knows the Chinks bought "mansions" in Or County Calif and mansions are at least $500K ! It's fking common knowledge

saveUSsavers's picture

and Trump is " A REAL GOVERNMENT..." ??? OMG that is delusional

debunker's picture

Not disagreeing with post but Clinton's 65% tax is for those making 500 million plus. I don't think many 'muricans will be affected by that.

Dassey4FedChair's picture

It will never end. The tsunami of fiat currency that we have leveraged to offset our trade deficits for the last 2 decades is washing up on our shores.  There will be no collapse, just a slow death of consumption, asset inflation, devaluation of our currency and reduction of our standard of living. No Weimar, no Zimbabwe,  just a slow painful death. Being awake during it will be like waking up during surgery and being paralyzed. The end of the dollar reserve status  will not cause a crisis for the world but rather for the West. A transfer of wealth to the industrial world ( China and India) will match industrial countries with production to consumption once again. We will hold on as long as possible, sell our Children's future to chase the new world currency that we contribute nothing productive to. We will not go down in flames, we will wash up like an ugly ex wife that fucked the whole neighborhood and still shows up with makeup on. No one will take us home; they'll whisper behind our back about how beautiful we used to be and just threw it all away. 

 

Good luck 

Pipsqweek's picture
Dassey4FedChair I would say this is a very clear concise analogy of how we go down. The sheeple will wake up one day with no clothes, then the next day with no food. All we can do is prepare.
Moonster's picture

In reality this may be the best outcome we can hope for considiring our circumstances!!

notsobright's picture

I live in Vancouver and I am told that the $$ is just shifting to commercial property. Any info on how the commerical market is doing in Vancouver?

Dassey4FedChair's picture

What Commercial market are you referring to? Most commercial property in major cities in the US and Canada including Vancouver are 20-50 year lease holds with 10 year options. You rent the land your business is on you don't own it. Almost every major piece of commercial real estate is owned by a REIT. So unless you have an extra 100 to 500 million sitting around you'll just be investing. Cadillac Fairview is probably the strongest player minus their Calgary exposure which is pretty significant. To answer your question though I'm not sure how you would even get into commercial real estate in Vancouver except for investing in a REIT which are never usually localized to one markets exposure. 

Dassey4FedChair's picture

Sorry I just read your post again and realized my answer sounded rude. I meant to ask are you referring to commercial real estate for the purposes of starting a business, buying land or investing I a REIT. Reason I ask is all three options would have very different answers IMO

The Real Tony's picture

The Chinks have all but turned Vancouver into a ghost city already. No one on Earth not even the Chinese would be buying commercial property when all the companies and people are leaving the province of British Columbia.

Lore's picture

Sadly, you're right.  Leaving the downtown core this afternoon, I was alone.  The silence was deafening.  There wasn't another car or person anywhere in sight.  It was like a scene from Life After People.  I didn't see another soul until I crossed into Burnaby, where a few lonely zombies were milling about...

willwork4food's picture

Leaving BC? BC is a pretty big slice of real estate.

Kirk2NCC1701's picture

"You leave! You leave now!"

The Real Tony's picture

Foreigners as in Chinese won't be buying anything from now until 2019. The Chinese DO NOT buy into falling markets in anything. Contrary to the crap you read next to no Chinese buy real estate in Toronto, Canada. Almost 100 percent of the buyers are the brain-dead white people who lived there eons ago. These people have a limited IQ when it comes to anything involving thinking. It looks like the 15 percent tax will hit the GTA soon and bury the real estate market in the GTA seemingly overnight. Even better news comes here:

http://www.scmp.com/news/china/policies-politics/article/2021977/china-c...

 

It appears the road has come to a sudden end for all these Chinese thieves.

 

August's picture

Could affect Lamborghini sales in the Lower Mainland.

pitz's picture

Actually most of the buyers were Indo-Canadians basically "pac-manning" as much property as they could on heavy amounts of leverage.  Chinese nationals appeared to be fairly significant sellers into the bubble.

Huh Reeeally's picture

From the GLobe and Mail published Aug 4: Almost 10,000 resale homes changed hands in the Greater Toronto Area last month, the highest recorded number for the month of July, the Toronto Real Estate Board reported. Average resale prices jumped 16.6 per cent to $709,825, with the cost of detached homes surging 21 per cent from the same period last year, to $952,983.

Toronto real estate is affected by a few major factors, limited supply of new housing - there just isn't much room in the city so lots of condos now, people climbing the property ladder cuz house prices never go down, Toronto is also a major destination for immigrants which increases demand and makes the market tighter, Vancouver's tax on foriegn buyers may drive some sales for sure, we're still one of the safest jurisdictions in the world after all. Toronto is the head office capital of the country and has global recognition. Prices in the 'burbs are increasing steadily too. The kicker is that there's a rural green belt that surrounds the city preventing development, so some small nieghbouring cities are experiencing huge housing booms, whole communities being built - houses, malls, schools, not just the odd house here and there.

It's a win-win right now. Toronto tax revenue trends higher with higher real estate values, which drives buyers to the suburbs, driving up prices there and increasing the tax base of those cities.

I feel like Tim Knight from Palo Alto, but I don't think we're at $12.50 per square inch yet :-) Thanks Tim!

northern vigor's picture

Right...like there are no Chinese people in Toronto. You can't throw a stick in Toronto without hitting two of them. And you say none of them buy houses? 

If "brain dead white people are buying 100% of the houses"...why would a 15% foreign buyer tax make the market drop? 

 

 

OliverAnd's picture

Canada needs Chinese dirty money to survive.  They imposed the tax on Vancouver to push out foreign investors into other regions 'spreading the wealth'.  If the value of homes drop across Canada, the Canadian economy will belly up with its citizens.  Canadians owe too much money on loans taken out based on the value of their homes.  When homes across Canada start to lose their values the economy will come to a crashing halt.  Sooner or later Vancouver will make 'windows' available for foreign investors otherwise Vancouver will become a relatively empty town filled with crime and illegal transactions.

Shaishen's picture

Very true but the bike lane enthusiast mayor of Vancouver and the street parade free weed pm might not have the brain to realize that 

 

.

Déjà view's picture

China/America sneezes...Canada catches pneumonia...1 of 5 'Eyes' where money is washed.

pitz's picture

Yeah the time to ban foreign buyers is at the bottom, not at the top. 

jonjon831983's picture

Canada is looking at an extradition treaty with China. This will allow China to reach out and pull back "corrupt officials". What does this mean for money already in Canada and future immigration from China? Hmm...

Sid James's picture

Vancouver is soo last month.

pitz's picture

Wow, the official data didn't make any mention of whether foreigners were sellers or buyers of Vancouver RE.  Most of the available evidence pointed to foreigners being *sellers* of Vancouver RE over the past few years post-apex, not buyers. 

Not sure why the media keeps distorting such into claims that foreigners were buying Vancouver RE.  The problem in Vancouver was foreigners *selling* out of RE, to the local speculators (mostly Indo-Canadians) who are now left holding the bag.  Along with their banker/subprime lender friends.

cognitive dissident's picture

BLAME CANADA

BLAME CANADA