A new tax on real estate purchases by foreigners in Metro Vancouver is supposed to address low vacancy rates and high real estate prices in the area.
The 15 per cent tax, which takes effect Aug. 2, was announced Monday by B.C. Finance Minister Mike de Jong.
But already, critics are finding loopholes in the tax, which will continue to allow foreign buyers to capitalize on hot housing markets. New numbers released Tuesday from Vancouver’s market show that over 10 per cent of real estate transactions involved foreign investors in July – up from five per cent in June.
UBC professor Tom Davidoff sees the tax as a good thing, but there are limitations to it.
“There’s risks of two types,” Davidoff told Global News. “You’re going to hit people you don’t want to hit, and you’re going to miss people you do want to hit.”
He says people who are on work permits in Canada will be affected by this tax, when they shouldn’t be, since they contribute to the Canadian economy.
Conversely, foreign investors with “friends or family who are citizens or permanent residents are going to be able to get around this tax.”
Instead, Davidoff says the province should look at whether or not a homeowner pays income tax to determine whether they should have to pay the 15 per cent fee.
But, whether or not it deters people from buying “it is still a useful step towards affordability,” according to Davidoff.
“Fifteen per cent is a lot of money … that tax will help out, it really makes the province better.”
Another loophole that’s been pointed out is pre-sale condos, but that’s a bit of a “red herring,” he said, because either the tax will get paid upon completion of the condo, or if they are re-sold to locals just before completion, the foreign investors are acting like a bank.
“Relative to a world where this tax wasn’t enacted, I think prices will be 10-12 per cent lower than if they had done nothing.”
Should Toronto get a tax?
Ontario Finance Minister Charles Sousa has said he is “looking very closely” at B.C.’s new tax, but is it really a good idea for Toronto?
While Toronto’s real estate prices are high, Murtaza Haider, associate professor of real estate management at Ryerson University, says the city’s crisis is much different from Vancouver’s.
Toronto’s market is influenced by domestic buyers, Haider says, but he calls it a “guesstimate” because the statistics on home ownership just isn’t available in Ontario like it is in B.C.
“In Vancouver you see empty apartments, apartments that are bought by people, but they don’t live there… That is not the case in Toronto.
“What you see in Toronto is a supply constraint. New homes are not coming in at the same pace, and at the same time the demand is slightly higher… and that is also contributing to higher prices here.”
When asked if foreign buyers would turn from Vancouver to Toronto because of the tax, he said Toronto just doesn’t have the same appeal.
But if Vancouver is off the market for foreign buyers, there’s nothing saying these investors will stay in Canada, he explained.
“Vancouver is a great place to be. If Vancouver is out of the picture, they would look at Sydney.”
On the other side, BMO Financial Group’s Chief Economist Doug Porter says there’s compelling evidence showing that there is foreign investment in Toronto, and the province should consider bringing in a similar tax.
But he says Toronto is a few steps behind Vancouver and will benefit from watching what happens to the market there.
There are other considerations for putting a foreign buyers’ tax in Toronto, both Haider and Porter say the major one is: Where do you draw the line?
Vancouver and its suburbs are included, but the tax doesn’t extend to Victoria or Whistler, but line is not clear when defining the housing market in the GTA.
“Where do you draw the line? Is it Kitchener? Do you draw it at London? Or do you draw it at Missisauga?” Porter asked.