VANCOUVER – A tax on foreign buyers aimed at cooling Canada’s priciest property market has forced some developers and builders of detached Vancouver homes to hit the pause button, but has had much less effect on the city’s condominium market, according to industry players.
Vancouver home sales in September were down by about a third from a year earlier after British Columbia implemented the new 15 percent tax in August. The tax was put in place in Vancouver because surging prices prompted worries about a bubble and speculation by foreigners, mostly from China.
In a city where million-dollar homes have been torn down to clear way for new ones that are even more expensive, some builders say the tax and other measures are shrinking order books and threatening jobs.
“I have lost two homes, at least, based on the government’s latest ruling,” said Larry Clay, founder of Clay Construction.
READ MORE: Vancouver home sales plunge nearly 33% in September
Clay said a developer who had lined up the company to build two 4,500-square-foot homes near Vancouver instead decided to rent out one property and look for a cheaper builder for the other, on concerns slumping sales would hit prices.
Sales of yet-to-be-built detached homes at developer Morningstar’s new 68-lot development in Maple Ridge, a bedroom community east of Vancouver, have dried up completely in recent weeks after 12 initial sales, said Ron Rapp, vice-president of construction at Morningstar.
WATCH: The federal government announced that they intend to stabilize housing markets across Canada by closing a tax loophole used by foreigner buyers. As Eric Sorensen reports, they will also bring in a mortgage stress test, making sure borrowers can sustain interest rate hikes.
The trend was highlighted by data from the province’s Homeowner Protection Office (HPO), where new homes must be registered before building permits are issued or construction starts. The Vancouver area accounts for three-quarters of the province’s registrations.
Registrations of new detached homes fell 24 percent month-on-month in British Columbia in September, the biggest fall in 20 months. Year-on-year the fall was 1.5 percent, the only decline so far this year.
The data is a strong indicator of construction activity three to nine months out, said Robert de Wit, chief executive of the Greater Vancouver Home Builders’ Association.
CONDO BUILDING PROVES RESILIENT
Separately, the HPO data showed registered multi-unit homes rose by 17.6 percent month-on-month in September and by 27.1 percent year-on-year.
New condo projects continue to sell quickly in urban centers, and marketing firms have indicated that buyer registrations are high even for those that have not yet launched, said Michael Ferreira, managing principal at Urban Analytics, a condo market research firm.
READ MORE: Vancouver tops housing ‘bubble risk’: report
“The challenges we have is still significant demand and very little supply,” said Ferreira, blaming a shortage of development sites and long timelines for getting municipal approvals.
Condos are generally cheaper than houses in a market where the benchmark home price is C$931,900 ($711,000). But even some luxury properties have done well.
A 26-story, 119-luxury unit Vancouver project launched two weeks after the foreign buyer tax was announced set a record of C$1,800 for average price per square foot, said Daryl Simpson, senior vice president at developer Bosa Properties.
“We are still very confident in this marketplace. We have a number of plans that will be developed over the coming years,” Simpson said.
But detached home builders noted shifting to the condominium market would not be easy. Clay said previously signed projects should keep his company busy for the next 12 months, but he worries about further out.
READ MORE: Surge in foreign buying in Metro Vancouver real estate market days before new tax took effect
“What’s it going to be like in a year when this lull works its way through to the custom builders? We’re going to be laying people off,” he said.