In recent months - and most recently over the weekend - we have frequently discussed the risks associated with housing bubbles springing up in certain parts of Canada and Australia on the back of hot investments by Chinese money laundering operations. We're happy to report that the British Columbia government finally took our advice to stem hot money inflows into real estate by announcing a 15% transfer tax on foreign nationals who buy real estate in Metro Vancouver. Finance Minister Mike de Jong unveiled the tax, which will take effect on August 2nd, after recent housing data revealed that foreign nationals spent more than $1 billion on British Columbia property between June 10 and July 14, or a mere $28.6mm per day.
CTV has the details:
Finance Minister Mike de Jong unveiled the tax as part of legislation aimed at addressing low vacancy rates and high real estate prices in southern B.C.... "The amendments include anti-avoidance rules designed to capture transactions that are structured specifically to avoid the additional tax," de Jong said.
The money from the additional tax would be used to fund housing, rental and support programs, the minister said. After the bill was introduced, Premier Christy Clark said her government is focused on increasing the housing supply, protecting buyers and sellers and boosting the rental market.
"Today we are taking measures to ensure home ownership remains within reach of the middle class," she said.
When Australia implemented a similar measure one month ago, we asked "Are you listening, Canada?" Today, Canada finally listened.
The announcement came just as even more grotesque details emerged about a Chinese money-laundering operation in B.C. An article written by the Province's Sam Cooper offers details about a "mysterious" real estate tycoon with a checkered past in China and links to $500mm worth of shady real estate deals in British Columbia:
A Chinese property tycoon linked to a massive banking scandal in China’s industrial north is at the centre of more than $500 million in B.C. property deals, a joint investigation by Postmedia and global due diligence firm IPSA International shows.
Chinese real estate magnate Kevin Sun — also known as Hong Sun, Kevin Lin, Hong Wei Sun and Sun Hongwei — founded Sun Commercial Real Estate in 2013. In addition to buying and selling hundreds of millions in B.C. property, the B.C. company, which focuses on immigrant investors, has raised over $200 million from investors.
Kim Marsh, executive vice-president of IPSA International and a former commander of a RCMP international Organized Crime Investigation Unit, said at the conclusion of a year-long joint investigation by Postmedia News and IPSA: “This case has many alarming red flags. The modus operandi outlined in this case is similar to some of the operations that are using the Canadian real estate market to launder money. This situation begs many questions including, what happened to the visa vetting process, banking compliance, public company scrutiny and regulators of all sorts.”
Land records indicate that over $500 million in B.C. property has been bought and sold through companies related to Sun.
The article explains Kevin Sun's checkered past growing up in the Jilin Province of China. What started out as a rags-to-riches story ended with an investigation into irregular lending practices at the Jilin branch of Industrial and Commercial Bank which concluded that Jilin Heng Enterprise Group used a "variety of techniques in conspiracy to defraud banks" our of about $500mm.
Police arrested a number of Sun's business associates in 2003 but Sun had already fled to Canada.
And while it took a masterful piece of investigative reporting to track down just one flagrant Chinese home flipper, the reality is that there are countless more such abusers, most of whom remain anonymous, even if their spoiled "rich kids" delight in all the perks an all too public exposure has to give.
With today's tax, Vancouver's real estate nightmare in which local housing had become the "new normal" anonymous Swiss bank account, and also made real estate virtually unaffordable to local, hard working Canadians, is finally set to end. As a result of the new proposal "the additional tax on the purchase of a home selling for $2 million to a foreign national will amount to an additional $300,000," Finance Minister Mike de Jong told members of the legislature.
Whether this will prove a sufficient deterrent to future Chinese buyers remains to be seen, but having finally taken the "tax-hike" route, the local government will be able to fine tune and keep rising taxes until it finally finds the breaking point beyond which not even Chinese tycoons and oligarchs will find Vancouver real estate a welcome source of their laundered funds.
The good news is that, if it is successful, Vancouver housing is about to become far more affordable. The bad news is that if it leads to a selling scramble, the worst cast outcome - one predicted by the OECD at the start of June, namely a "disorderly housing market correction" - may have just been triggered leading to a dramatic collapse in Vancouver home prices.
Then again, since it will mostly affect Chinese robber barons, we doubt the local population will shed many tears.