British Columbia’s new speculation tax on out-of-province buyers will likely convince a wave of owners to sell their vacation properties, pushing down home prices, said a forecast from Royal LePage.
By the end of September, the real estate company is expecting the average price of a recreational home in B.C. to reach $531,333, a 2.8 per cent drop from last year’s average of $546,444.
Under B.C.’s speculation regulations, owners outside the province will be taxed 0.5 per cent this year, but next year will see the rate climb to two per cent for foreign investors and one per cent for Canadian citizens and permanent residents not living in B.C. but owning properties in the province.
The tax does not apply to all areas of the province. It will come into effect in Greater Victoria, Nanaimo, Greater Vancouver and Kelowna. Finance Minister Carole James has said that the people with cottages and second homes on the Gulf Islands or in rural areas will not pay speculation tax.
After announcing the new tax in February’s budget, James subsequently removed Parksville, Qualicum, unincorporated Gulf Islands and the Juan de Fuca electoral area from regions affected by the speculation tax.
Royal LePage concluded the tax would spark a price dip in B.C.’s recreational sector after surveying 200 real estate advisers who specialize in such properties between May 15 and June 1.
About 55 per cent of B.C. respondents said they think the tax will “weaken momentum within the region and keep sales activity from reaching its true potential,” while 40 per cent thought it would affect prices.
Royal LePage CEO Phil Soper said the tax has already weakened demand for B.C. vacation homes from Albertans, which he considers “the biggest buying cohort outside of the province.”
“You’d think with a strong economy and so much availability, you would see a stronger recreational property market in B.C., but it has been balanced by the recent regulations,” he said.
The company predicted a 0.9 per cent dip in recreational home prices in Manitoba and a 7.5 per cent fall in prices in Atlantic Canada, bringing the average price in the region to $228,754.
Soper said he attributes Manitoba’s expected decrease to an increase in supply, but said he expects it to be a “short-term blip” because Winnipeg has been one of the most stable recreational markets over the years.
He said Atlantic Canada’s drop stems from a lot of young graduates — a group that tends to buy homes more fervently — moving out of the province and a boom in people choosing to renovate instead of move.
The country as a whole was expected to fare much better, said Soper and Royal LePage, which is forecasting a 5.8 per cent increase in national recreational home prices. That would bring the average up to $467,764 from $442,239 previously.
Ontario and Alberta could also experience sharp spikes in recreational pricing. Royal LePage said Ontario recreational home prices will average $535,885, up 10.4 per cent from last year, while Alberta’s will hit $770,100, an 8.9 per cent increase.
Soper said Alberta will benefit from an “exodus” of people looking away from B.C. for recreational properties and will see price increases because of improved employment opportunities and strong oil prices that drive activity in the market.
He said Ontario’s recreational market will be driven by large numbers of people moving into the province and by an expected decrease in inventory levels and an increase in sales activity.
