The Metro Vancouver real estate industry will be working overtime this August long weekend, as it scrambles to complete home purchases ahead of the August 2 deadline for the new overseas home buyer tax.
Many real estate industry insiders do not object to the new 15 per cent additional Property Transfer Tax in itself. But there is a strong backlash over the immediate implementation of the tax, the fact that it applies to purchase contracts that close after August 2 even if the contract is already agreed, and the lack of exemption for people on medium-term work contracts.
Richard Bell, partner at real estate and immigration specialist law firm Bell Alliance, told REW.ca, “We are scrambling. We’ve brought forward dozens of our [overseas buyer] purchase contracts that were supposed to close in August and September to complete them this week. We’ve had to go to other law firms to help us with the workload.”
For some contracts that cannot close before August 2, Bell added, “We don’t know whether our clients can come up with the extra money, or whether the banks will finance them for the additional funds. People generally buy at the top of their budget. These people are being hit unexpectedly with massive extra bills of $150,000, $200,000, even $400,000.”
Bell said the government’s failure in the implementation of the tax is two-fold – first, that existing contracts are not exempt if they close after August 2, which means buyers may walk away, losing their deposits – and that could adversely affect Metro Vancouver residents in turn.
He said, “There could be a cascading effect, which is that the sellers relying on that sale for their own home purchase may have to breach their own purchase contract and lose their deposits too, including local people who shouldn’t be affected by the new tax.”
The second failing, Bell said, is that people who commonly move to the region from overseas on two-year work permits are not exempt. This means, for example, that a person being hired from the States or Europe now has much higher home-purchasing costs in Vancouver – which in turn would affect the local employer as the candidate renegotiates their compensation package.
Neil Chrystal, the president and CEO of Polygon Homes who has written a letter to Christy Clark on the subject, told REW.ca, “I’m obviously upset. We had a meeting with the finance minister last week, and there was no mention of this tax, although we said that if there were to be a new tax it should be phased in. But there was zero consultation with the industry. The BC government messed up.
“First, the tax is too high, it’s overly aggressive. Second, the industry was not consulted. Third, and most important, existing deals should be grandfathered. It seems immoral and unethical to treat existing buyers this way.”
He said it was too early to tell if buyers of pre-sale Polygon homes would have to walk away, but added that he was not optimistic that the BC government would make any amendments before the legislation is passed.
Chrystal added, “It puts a black cloud of uncertainty over this government. Maybe the affected buyers are not local, but I don’t care whether you’re Chinese, American, Mexican… you don’t treat people this way. And what if this is the catalyst for a downturn in the local housing and construction industry? It could affect a lot of local people too.”
He also pointed out that similar overseas buyer taxes applied in Hong Kong and Sydney, unlike BC’s new tax, were not retroactive on existing deals and were phased in more gradually.
The Urban Development Institute echoed the sentiment across the industry. CEO Anne McMullin wrote a letter to Christy Clark July 26, saying, “We are very concerned about the impact of these taxes on the market and our industry – especially since there appears to be no pre-sale grandfathering provisions being considered by the government. This is particularly troubling for the tax on foreign investment because there was no warning to consumers or the industry about it.
“People with presale contracts will be facing unexpected tax bills of tens and hundreds of thousands of dollars more than they anticipated. Many may not be able to complete on their purchases and projects may be put into jeopardy. British Columbia’s reputation as a safe and stable place to invest is being undermined. We strongly urge your government to grandfather pre-sale contracts that are in place as of August 2, 2016 from the tax on foreign investment.”
Robert McLister of CanadianMortgageTrends.com wrote July 27, “Provincial leaders have just molested international homebuyers with a savage 15 per cent land transfer tax. Worse, and incomprehensibly, they’ve applied it retroactively and with no compunction to purchasers already locked into contracts, people with no other way out besides losing their deposit. This is how the premier wants BC to be judged by those outside our borders.”
"Opportunity for Local Buyers"
However, some in the industry are spotting the immediate opportunity for local buyers. Local REALTOR® Barry Magee of Macdonald Realty pointed out that if any overseas buyers are forced to walk away from deals that can’t be closed before the deadline, the listing agent will be scrambling to find a new buyer as soon as possible, so their sellers can go ahead.
Magee said, “I’ve got local buyers who are really struggling to find a place that is right for them. So I’m contacting local listing agents to see if any of their overseas buyers are pulling out of purchases, so that I can get my buyers an opportunity.”
He added, “I don’t personally have any overseas buyers, but my brokerage is scrambling right now. The Liberals' implementation of this tax is ridiculous.
"Also, since we were already seeing a slowing in the market, my guess is that the BC government is introducing this tax as a way to take credit for any price corrections, ahead of the provincial elections.”