Of all the possible ramifications when Canada’s first foreign-buyers tax takes hold in Metro Vancouver on Tuesday, the most important one in Victoria will be the possibility of contagion.
What if the mostly Chinese investors who are the targets of the tax respond simply by looking across the strait, to save $300,000 on a $2-million property?
Theoretically, it looks quite possible. Some people discount the tax impact, saying there’s so much demand pressure that the tax won’t change the scene much. But an enormous, targeted tax hike coming in with five days’ notice is going to have serious ramifications. The problem is, nobody knows what they are yet.
Finance Minister Mike de Jong conceded a few times over the four days of debate on the bill that he’s not sure how it will all shake down.
When concern about displacement from Vancouver to Victoria was expressed in the house, de Jong said: “I have heard that concern, and I think it’s legitimate.”
He acknowledged a lot of people were surprised by how far the government went with the intervention and are now asking if the foreign nationals will relocate elsewhere.
“The most honest answer I can give is that we’re not certain.”
The new requirement on tax forms to state nationality and residency will allow better tracking of any such shifts. Older data showed relatively small participation by foreign nationals in the south Island market, he said. But he warned that the legislation allows the government to expand the new tax’s coverage area outside Metro Vancouver in short order.
“One of the regions we are watching most closely is the south Vancouver Island capital region,” said de Jong.
It confirms the remarkable nature of the tax. It’s expressly designed to drive rich foreigners out of the real-estate market. And if they move elsewhere in B.C. to any great degree, the government appears ready to hunt them down and tax them wherever they show up.
One of the oddities is that the more money the tax brings in, the more it will be considered a failure. If foreign investors just consider it as an extra cost of doing business and carry on, then hundreds of millions of dollars will roll into the treasury. But B.C. homebuyers will be even more frustrated than they are now.
If there’s no dramatic change, the government will have a fresh new fortune to invest in other housing measures that will start rolling out next month.
But it’s been made clear they’d rather see the market correct slightly, by ushering out the foreign high-rollers to make room for B.C. buyers, who vote.
As well as expanding the coverage area, the government also now has the option of bumping the rate up to 20 per cent. Not to make more money, but to make it even more punitive than it is now.
Sooner or later, either the tax — or the differential — is going to have an impact and it’s going to be significant. A Canadian buyer of a $1-million Metro Vancouver home on Tuesday will pay $18,000 in property-transfer tax. A foreigner will pay $168,000. On a $5-million home, it’s $98,000 for a Canadian buyer, compared to $848,000 for a foreign buyer.
The fallout of a foreign-buyers shift would be even more acute in Victoria, because the high-end market, where much of the foreign money goes, is so much smaller. There are blocks of multimillion-dollar homes in Vancouver, but only a few dozen in the capital.
When the frenzy to get deals in under the wire is done, de Jong said people will be able to track the effects almost in real time in terms of changes in how many foreigners are buying, where they are buying and how much money is shifting.
After the bill passed unanimously in the legislature, de Jong told reporters: ‘‘I want to be forthright acknowledging that we don’t have an absolutely ironclad notion or forecast or prediction for what the impact is going to be.”
It’s an unprecedented move, but as de Jong said, everything about B.C. real estate, particularly in Vancouver, is unprecedented these days.
