_Vancouver: A year on from the foreign buyer tax how is the market performing?

Below Kevin Skipworth, MD of Dexter Associates Realty, Knight Frank’s partners in the city, gives us his take on current market conditions.

Q: Kevin, how has the luxury Vancouver market changed since the implementation of the 15% foreign buyer tax in August 2016? 

A: The luxury market has seen a noticeable change in demand from buyers across three key parts of the city – Vancouver City West Side, West Vancouver and Richmond. These locations not only have the highest concentration of foreign buyers but Richmond has the highest concentration of buyers from China. 

From August 2016 we saw sales decrease following the implementation of the new 15% foreign buyer tax and the market remain subdued for the remainder of 2016, however, there were other changes which also led to weaker demand. 

In February 2016, stamp duty tax for properties valued at CAD$2m or more increased from 2% to 3% on the value above this amount. In May, regulatory changes made it more difficult to agree assignment contracts for resale properties within BC. The result was less speculation in the market and declining sales.

There has been a shift in favour of the pre-sale (off-plan) apartment market with some foreign buyers wanting to assign their contracts in presales rather than complete the contract and pay the tax.  However, we have also seen the value of those off-plan properties increase significantly prior to completion, generating a profit in the interim period.

Q: In March, this year the British Colombia (BC) Government announced a policy change excluding those with work permits from the extra 15% tax. The aim, it was implied, was to make Vancouver more appealing to tech-sector professionals coming from abroad. Have you seen any evidence of this?

A: The lower end of the market has been extremely robust over the last nine months, in part due to affordability and a lack of supply in that market. There has been no firm evidence yet that this change has made a difference although Vancouver is reported to be a potential destination for Amazon’s new headquarters.

Q: Has the BC Government introduced any additional measures to improve affordability in Vancouver? Is there, for example, any assistance for first time buyers or a tax on vacant homes?

A: In January, the previous Liberal Provincial Government implemented a program to provide down payment loans to first time buyers up to a maximum of CAD$37,500 on homes valued up to CAD$750,000 with no requirement to pay interest or principal for the first five years. 

With the change in government to the New Democrat Party (Labour Party) this summer, they have indicated this program may be eliminated. In 2016, the BC Government introduced an exemption on the stamp duty tax on any brand new homes worth up to CAD$750,000, an effort to stimulate supply. In the last year, presale developments have been the hottest part of the market with one project in the suburbs receiving over 3,000 applications to purchase only 360 units.

Q: Recent media reports suggest the 15% foreign buyer tax and other measures are now under review. Do you think it is likely the tax will be abandoned?

A: Following the change in government in BC, housing affordability and all programs related to controls on the housing market are under review. It would be very unlikely to see the Foreign Buyer Tax abandoned. There has been talk of it being expanded to other areas, or all of BC - at present it only applies to Metro Vancouver. The stamp duty tax is an important source of revenue for the provincial government, further tax measures would have to be considered very carefully. Supply side measures with an eye to improving and incentivizing local government approval processes are under consideration as well.

Q: Toronto has followed Vancouver by introducing an additional tax on foreign buyer purchases, do you think other Canadian cities will follow suit?

A: I think it's unlikely other local governments will follow suit. Victoria, Montreal and Ottawa continue to attract foreign buyers but not to the extent that is has prompted calls for a tax to control that part of the market. Aside from Victoria these cities do not have a process in place to track foreign buyers, so it is difficult to quantify the impact. The numbers from Victoria have not shown a significant increase.

Q: Historically, new housing supply across British Colombia has been low. Are there signs the number of residential units under construction is picking up?

A: There has been an 18% decrease in housing starts in Metro Vancouver in the first eight months of 2017 compared with the same period in 2016. However, the City of Vancouver has registered a much larger decline with housing starts down 80% in the first half of 2017 compared to the same period in 2016. This is primarily multi-family properties. 

Further out into the suburbs there has been an increase in housing starts. The cost of construction and land is no doubt playing a big part in the decline closer to the City of Vancouver. Demand is far outstripping supply so it would take a considerable upturn in construction to have any significant impact going forwards. Labour and land costs are likely to constrain development in the near future.

Q: At Knight Frank we are increasingly aware of the role education plays as a driver of property demand. Does the location of international schools and universities in Vancouver mean overseas buyers target certain areas of the city?

A: The private schools in Vancouver’s West Side are a key draw for family buyers as well as certain public schools and the University of British Columbia (located in the West Side of Vancouver). Vancouver’s quality of life, in particular its privacy and safety, makes the city highly popular with domestic and foreign families alike.  

For more market intelligence on the Vancouver housing market please contact Kate Everett-Allen or Kevin Skipworth