The red hot housing market of Vancouver finally had some cold water thrown on it as new figures from the Real Estate Board of Greater Vancouver (REBGV) show home sales fell nearly 23 percent last month. The government in British Colombia rolled out a 15 percent tax for foreign buyers at the start of August.
The tax was implemented to curb foreign speculation, mainly from Chinese investors, that was being blamed for double digit increases in property values. Foreign buyers doled out more than C$885 million ($689 million) on Metro Vancouver real estate in a five week span during June and July with provincial government data showing more than 86 percent of it came from the southern provinces of mainland China.
“The record-breaking sales we saw earlier this year were replaced by more historically normal activity throughout July and August,” Dan Morrison, REBGV president, noted in a press release. “Sales have been trending downward in Metro Vancouver for a few months. The new foreign buyer tax appears to have added to this trend by reducing foreign buyer activity and causing some uncertainty amongst local home buyers and sellers.”
Detached properties were hit hardest as sales dropped 45 percent from a year earlier and 4.2 percent from the previous three months. These stand-alone homes had been the preferred targets of foreign buyers.
Too Early to Tell If New Vancouver Tax Measures Effective
In the short term, the new tax on foreign buyers appears to have cooled down Vancouver’s real estate market, however, the REBGV wasn’t ready to call a downturn just yet.
“It’ll take some months before we can really understand the impact of the new tax,” Morrison explained. We’ll be interested to see the government’s next round of foreign buyer data.”
While the measure may help to tamp down sentiment from some local residents who had voiced resentment over being priced out by overseas buyers, China’s consul general in Vancouver, Liu Fei, is less than impressed.
“Why a 15 percent tax? Why now? Why this rate? What’s the purpose? Will it work?” she said in an interview Bloomberg earlier this month. “The issue is how to help young people afford housing. I’m not sure even a 50 percent tax would solve the problem.”
Among Liu’s concerns were Chinese students who had locked in contracts to buy homes but found themselves unable to fund the deals after the new tax took effect. Vancouver-based Urban Analytics estimated 2,300 units valued at C$1.25 billion ($972 million) had been pre-sold to foreign buyers that were potentially subject to the next tax.
Eventful Year for Vancouver Real Estate Continues
The seaport city is known for being one of Canada’s warmest cities in the winter, but it’s the property market that has been sizzling, with the average selling price of detached homes reaching C$1.82 million ($1.4 million) in January.
Vancouver real estate was in the news again in April when an unlicensed realtor crowdfunded the purchase of a pair of run-down Vancouver apartment buildings via Facebook to a pack of mainland-backed investors for C$60 million ($47.5 million).
A month later, state-news agency Xinhua warned some Chinese nationals had bought homes overseas as a way to launder money after a Chinese student reportedly bought a C$31 million ($23.5 million) mansion in Vancouver.