A letter from a Vancouver realtor to his clients suggests ways to get around the new 15 per cent foreign buyer tax implemented by the provincial government. It is just part of a howling chorus of real estate professionals upset with the province’s latest legislation.
An email sent by Century 21 realtor Michael Stewart and obtained by Global BC calls the new tax, announced on Monday and to be in effect on Aug. 2 this year, “unfortunate news” that might have “a big impact.”
It goes on to offer a solution.
Stewart is suggesting foreign buyers can use assignment clauses to flip their pre-sale condo before the building is complete and they must register their land title and pay the tax.
According to the new foreign buyer tax legislation, any foreign buyer who purchases a pre-sale condo does not need to pay the 15 per cent tax until the building is complete and the unit is registered into the land title registry.
Given rapid year-over-year price increases and that many pre-sales occur years before the building is built, that gives considerable time for a buyer to flip their property for a profit without incurring the tax.
The second solution offered by Stewart, that he may be able to sell the pre-sale to a third party, is more ambiguous, but it likely indicates the realtor would assign the contract to another one of his clients.
Stewart told Global BC he received a lot of hate mail after sending out the email, but he thinks it is because most don’t understand the legislation.
“I think a lot of people may have misunderstood what I’m saying. This is not tax avoidance and this is not a way to rip off the government. I would not do that and I am not allowed to do that.”
He adds that his suggestions are “totally legitimate and totally legal.” He also argues that encouraging foreign buyers to flip their pre-sale condos actually will help affordability as it frees up more supply.
But Premier Christy Clark says realtors should not be advising their clients on how to get around the tax.
“Realtors should not be doing that. They should be informing their clients that every single one of these transactions could be audited.”
The premier says the government has an audit team ready to analyze every transaction that was on the table and closed before Aug. 2.
Realtors are upset, deals are shaken
As a realtor, Stewart is just one of many who is in opposition to the new tax.
“I think it is unfair because it is abrupt. I think it is a highly political thing and a response by the provincial government to concerns about affordability, and it’s so that Christy Clark can win the next election. I support her, but I personally am going to be taking a big hit on this. I sell in an area with a lot of foreign buyers, so I personally am taking a hit on this.”
Stewart estimates that foreign buyers make up about 10 per cent of his clients, the same proportion reported by the B.C. government on Tuesday. The latest data from the Ministry of Finance found that foreign buyers made up 10.9 per cent of all real estate transactions in the City of Vancouver from June 10 to July 14.
That number jumped to 18 per cent in Richmond and 17.7 per cent in Burnaby. Across Metro Vancouver, it averaged at 9.7 per cent.
Stewart says he has already heard from many clients who are uneasy with the new legislation.
“I’ve got clients who are deeply concerned about this and there undoubtedly will be lawsuits, deals dying, and bad things happening in the real estate market.”
Don Ledoux, a realtor with Royal LePage, feels the same.
“I just can’t believe that the place I grew up and lived for thirty years, that there’s a government that can come along and have legal contracts in place and can impose a tax on people who have a deposit. It doesn’t fit with what I see as a Canadian what we stand for.”
Real Estate Board cries foul
The outrage from realtors has sparked the Real Estate Board of Greater Vancouver (REBGV), which has previously minimized the impact of foreign money in the Vancouver market, to ask its members to send a letter to their MLA and the premier.
In a memo to its members, the REBGV says they have asked brokers to report how many accepted deals will be impacted and the total dollar value of those transactions. They also “urge all members” to write their elected representatives and let them know their feelings.
They include a form letter which begins: “I’m writing to express my concern with the provincial government’s decision to implement a new foreign buyer tax on August 2 with no consultation and no time for the home buying and selling public to prepare.”
It also says that the tax is “causing unnecessary stress and volatility in our housing market.”
It requests that the government exempt accepted real estate contracts already in place from the new tax.
UPDATE: The Real Estate Council of B.C. says realtor Michael Stewart is now under investigation. A statement provided by the council reads:
“The legislation introduced by government earlier this week includes anti-avoidance rules designed to prevent transactions that are undertaken to avoid or defer payment of the Additional Property Transfer Tax. The Province is introducing and will be enforcing stringent non-compliance penalties. Under the legislation, any individual who fails to pay the additional tax, or who participates in providing incorrect information to avoid the tax could be liable for fines of up to $100,000 and/or two years in prison.
“The Council advises all consumers to obtain independent professional legal or accounting advice before entering into any transaction promoted to them as a “solution” or measure to avoid payment of applicable taxes. On July 25, in an email to all licensees, the Council advised licensees to recommend to both their buyer clients and their seller clients to seek independent professional advice to determine if their trade in real estate will be subject to the Additional Property Transfer Tax, and any potential impact that may have.
“The Council has contacted the licensee and the brokerage to advise them to immediately cease these advertisements. We have opened an investigation and will be looking into the matter very closely.”