What time in our history has ever been like the last 2 months to be a homeowner, a Buyer, a Seller or a Real Estate professional?
If you live under a rock (no slight to “unaffordable housing” in Metro Vancouver) there has been some significant changes in the BC and particularly Metro Vancouver Real Estate market. The biggest impact on all of us is no doubt the 15% foreign investment tax applicable to anyone who is not a Canadian Citizen or Permanent Resident of Canada.
Introduced July 25 by the current BC Liberal Government, this tax was introduced as massive public pressure for a reaction from the government, over 2 years in the making.
I am going to do my best to remove all opinions of how this explosion of real estate values in our communities was handled, or better yet, not handled for so long by our government. We elected them, we need to live with them, for now.
The tax makes sense in many ways yet in its simplest form, is the relation of the power of National currencies at play. Imagine investors coming to our country, a stable, safe, warm and loveable cousin of the US. Vancouver, where our weather is great year round, we enjoy an excellent quality of life and have one of the most beautiful cities in the world.
Those investors have currency worth multiples of ours, meaning a single dollar in their country is worth more than a single dollar in ours, and see our Real Estate market as a safe, affordable and intelligent bet. We have limited space to build due to our breath-taking North Shore mountains, the Pacific Ocean and the Border to the South. This means, to a point, we should always be in demand? Great investment, right?
A 15% tax sounds like a great move, as many agree it is, as it helps keep the playing field level for people that work, live and play in our city. It help keeps homeownership fair for our residents versus outside forces that have little interest in living and contributing to our community.
But what about the ripple effect, specifically, the poorly thought out detail that accompanies the 15% tax, namely it is effective in 1 week.
August 2nd, (currently) the tax comes into full effect AND includes all home sales written prior to this date that are yet to close. This means that as a foreign investor, if you wrote a contract to purchase a home 2 months ago in May, but it does not close until August 3rd, you are in for a whole world of financial hurt.
The attitude from many I speak to who are not involved in the market at the moment is scary in the fact that the conversation can turn to “us” vs “them.”
“Metro Vancouver/Canada” vs “everyone else”
We so quickly forget about our neighbours, friends and family who WILL be effected by this knee-jerk, simple-minded omissive detail of a rectoactive date that was introduced. Something they government has so far, eluded to be steadfast in their decision.
Let’s figure out why this could be bad together.
Imagine for a moment you just sold your house last month, you were excited and had an excellent result in our hot real estate market. You got more than asking, it was busy as all can be and it was done in a week. Great!
Now, embarking on the adventure it is to be a buyer, you are prepped for the craziness that has been our market. Lines to wait in for open houses, no showings until the weekend, condition free offers and WAAYYY over asking price offers.
You mentally prepare.
You write a few offers and lose.
And just like a gift from above, the day finally comes where you secure a home. You put down a great deposit for your new home and have finally succeeded in the market.
July 25 comes as it does every year but this time is much different. Your REALTOR® calls to tell you the person that bought your home is not a Canadian Citizen or Permanent Resident, thus is subject to a 15% additional tax. No warning to the Buyer, no warning to you.
As your heart begins to pound a little, the normal reaction thanks to the media, is “Hey, they all have tons of money anyways, it will be okay.”
Wrong. Dead wrong.
Does everyone have an infinite amount of money in their bank?
If so, why are they not buying a $15 million dollar home in North Vancouver instead of yours?
Does any intelligent person want to pay 15% higher than what someone else would pay?
What implications do they have if they walk away? If they put down a 5% deposit on a $700,000 home ($35,000), would they rather lose that amount rather than add another $105,000 above market price to their bottom line?
So what is the ripple effect of this?
Now, your neighbour/friend/family member has not sold their home.
What happens to the home they have committed to purchase? Do they find a way to carry 2 homes (assuming the bank would finance them- likely not in most cases) or choose to walk away from their purchase as well, presumably losing their deposit in the process and getting sued by the seller of that home for not completing.
They are Canadian Residents, so they can not run away.
Now, consider how many people in that chain of buys and sells could lose their sale and purchase, be induced into lawsuits and lost money, just because one person had the option to hop on a plane and leave their 5% in a Real Estate trust account somewhere?
This scenario will be prevalent in our market unless change comes from our elected officials, and quick.
Forget about the “big, bad” foreign investor who has run a muck in our real estate market for a moment, and consider your neighbour down the street who is in a roller coaster ride.
I hope our government reconsiders the hard and fast, recto active August 2nd date and does what is best for the other people, not the foreign buyer, that are caught in this mess.
The people we call friends, family and neighbours.
Until next time,