Just about 6 months from when the BC government introduced its 15% property tax for foreign buyers of homes in Vancouver, the verdict is out: The new tax has had significant impact on not only home prices in greater Vancouver; but has also resulted in a significant decline in the number of foreign buyers in that hot housing market.
The new tax took effect on all transactions taking place from Aug 2, 2016 onwards. By October 28th, the government had reported receiving what one might term instant gratification.
According to provincial statistics, foreign purchase accounted for around 13.2% of the regions total home buying activity prior to August 2. Between Aug 2 and end of September, non-Canadian citizens closed just 1.3% of property transactions. A remarkable decline by all accounts!
There was additional impact too, other than just volume declines. Statistics show that Vancouver experienced a significant home value decline too, largely attributable to the new tax. By late September, the average price of a detached home in Greater Vancouver stood at $1.53 million, which was a sharp (16%) decline from the all-time highs recorded in January last year. A silver lining in the clouds was that the prices were still higher (9%) by September 2015 standards.
Analysts at BMO provided statistical data to confirm that the 15% tax did in fact have the effect that the BC government was looking for. In a snapshot daily commentary dated January 24th, 2017, the firm used graphs that showed an interesting comparison between prices in the nation’s three hot housing markets – Vancouver, Toronto and Victoria, the latter 2 of which have no foreign buyer’s tax.
The chart clearly show where the home prices in Vancouver start diverging sharply from the other two markets – about a month prior to when the new tax took hold; and continues to steadily drop thereafter. Meanwhile, housing prices in both Toronto and Victoria have continued to move higher, prompting some market watchers to conclude that Vancouver’s loss is gain for the other two markets as money changes jurisdictions to find a new home.
As if confirming BMOs assessment, the Real Estate Board of Greater Vancouver’s (REBGVs) MLS Home Price Index for December 2016 seems to tell the same story. Prices for residential homes of all types declined by around 1.2% in December, clocking a 2.2% decline over a 6-month period. This compares to a 17.8% increase over the full year (2016).
NO OTHER INFLUENCES
The statistics presented by BMO were offered as evidence that it was the BC government’s 15% foreign home buyer’s tax that has driven down home prices in Vancouver; and that no other factors influenced the housing price decline.
The implication is that the Federal governments new mortgage rules, that took effect in October 2016, did not have a major influence in cooling Vancouver property prices. Under the new Federal rules, stricter affordability tests are being carried out to ascertain whether homebuyers can afford to carry their mortgages without undue stress.
BMOs assessment of no other influence may in fact be correct, as the federal government itself estimates that, as a result of the new mortgage rules, home sales may fall roughly 8%. This decline in sales would hardly be unprecedented, since home sales had previously declined by over 20% back in 2010, and recouped their momentum a few years later.