Changes announced in the February 20th Budget
The Property Transfer Tax (Stamp Duty) paid when purchasing residential property will be increased to 5% (from 3%) on the purchase price above $3,000,000 effective February 21st, 2018 for all properties in the Greater Vancouver Regional District and at this point it now appears to be regardless of the date the contract is written.
- The effect? The market above $3,000,000 has already been quiet in Metro Vancouver. With the majority of properties in that price range in West Vancouver and Vancouver’s West Side, we’ve seen sales decline significantly in the last 2 years, even prior to the initial Foreign Buyer’s Tax coming in to place. The Property Transfer Tax was increased from 2% to 3% for properties above $2,000,000 in February 2016 which had an effect at that time. It will put greater pressure on prices below $3,000,000. The biggest effect will be the lack of transitional rules for properties in Greater Vancouver – meaning any written contracts completing after February 20th, 2018 will be subject to the increase.
The Foreign Buyer Tax has been increased to 20% as of February 21, 2018 and expanded to areas outside of the Greater Vancouver Regional District (Capital Regional District, Fraser Valley Regional District, Regional District of the Central Okanagan, Regional District of Nanaimo). The timelines for transitional rules are in the link below, but essentially the increased Foreign Buyer’s Tax is effective on all deals completing as of February 20, 2018 in Greater Vancouver and in the other areas affected if contracts were dated prior to February 21th, 2018 and complete prior to May 18, 2018 then they would be exempt. Outside those dates, all properties will be subject to the Foreign Buyer Tax of 20% in those areas noted.
- For Greater Vancouver, the tax isn’t new. While an increase of 5% will impact transactions the bigger effect will be in those areas that are new to the tax. Again, transitional rules were not put in place for Greater Vancouver. While Foreign Buyer numbers for all areas now affected by the tax show less than 5% being a Foreign Buyer, further measures on identifying beneficial owners may result in further taxation not accounted in these numbers. On the whole, the effects in Greater Vancouver will continue to push buyers to the lower end of the market, and continue to see the luxury property market soften. It may also push some buyers back to Greater Vancouver from other areas, specifically Victoria and Nanaimo who went there to buy and avoid the Foreign Buyer Tax.
For the first time, there is a speculation tax on properties owned by individuals not paying Income Tax in BC and that keep the property vacant. The tax will be 0.5% of assessed value in 2018 and increased to 2% in 2019 for all areas affected by the Foreign Buyer Tax. The speculation tax will be applied to all properties that are not owner occupied or qualify as a long-term rental property. There are still details of the Speculation Tax to be determined by the Provincial Government as to its implementation and potential exemptions. Details of the tax so far are in the link below.
- The effect will likely see some rental properties being introduced into the market that have been vacant as well as some supply coming onto the resale market as owners that will be subject to the tax on their property decide to sell instead of renting their property or paying the tax. While the numbers of properties potentially affected are not known, and vacant homes owned from someone residing outside British Columbia are widely speculated it will take time to see any real effects. It may turn investment away from affected areas – especially vacation homes in the Central Okanagan which sees individuals from Alberta purchasing vacation homes there and already owning homes there – which they may look to sell instead of paying the tax.
The government will be raising the amount of school taxes for properties valued at $3,000,000 and more. Properties valued between $3,000,000 and $4,000,000 will be subject to a 0.2% tax and a 0.4% tax on the assessed value above $4,000,000 beginning next year.
- Again, another measure which will weaken the luxury home market further and put pressure on prices to come down above $3,000,000 as the layered taxes take their toll. The areas mostly affected would be West Vancouver, Vancouver West and Richmond. Retired homeowners in these areas will be affected the most as this will be a significant increase in their taxes - $8,000 annually on a property assessed at $4,000,000. While they have an ability to defer their taxes, some may choose to sell or be forced to sell. This will add supply into a market with depressed demand.
In attempting to deal with money laundering and tax fraud, the Provincial Government is going to begin collecting information on pre-sales and assignments of contracts from developers. This data base will be shared with provincial and federal tax authorities. As well, additional information on beneficial owners of corporations will be required on property transfer forms. A registry of beneficially-owned properties will be established and publicly available through the Land Title Office.
- While the Provincial Government didn’t put any controls or added taxes in place for pre-sale (off plan) sales including the assignment of contracts, this measure may be the first step into looking at some sort of taxation or demand side measure on those type of sales. The provincial government has indicated all the steps are the beginning of measures to be put in place, depending on the reaction of the market.
The Supply Side of the real estate equation was left mostly untouched by the government for resale and brand new properties. There was language to aid in providing more purpose built rental and affordable housing (114,000 units over the next 10 years) along with commitments to student housing and allowing post-secondary institutions to borrow to build student housing. But with labour shortages currently occurring to a large degree in the construction industry, any increased building outside market for sale units will only further restrict supply as labour is moved away from that type of construction. So while the government is looking to work with Mayors to increase density around transit hubs, the ability to build may become harder to do. And without any impact on speeding up the permitting process, delays will continue to be a factor.