Photo: Wendy Cutler/Flickr
Six months after the BC government introduced a foreign homebuyer tax in the Metro Vancouver area, Canada’s hottest housing market has been showing signs of losing steam. Vancouver home sales and prices fell in the second half of 2016 after the tax came into effect in August.
In a recent report, the British Columbia Real Estate Association (BCREA) says housing demand in BC returned to long-term average levels in January 2017. Home sales in Vancouver fell to 35 per cent of provincial transactions compared to 43 per cent in January 2016. Some market watchers have attributed this year-over-year drop in foreign buyer activity from China.
In addition to the foreign buyer tax potentially deterring investors, the Chinese government cracked down on currency exchange at the beginning of the year in an effort to reduce the country’s cash outflow. Prior to the new rule, citizens could convert up to $50,000 USD a year, but now they must provide documentation on what their converted money will be used for. If their funds are used for offshore property purchases they will face penalties.
In January, Bloomberg reported that the stricter enforcement is deterring first-time homebuyers, who lack offshore assets and the knowledge of maintaining tight capital controls. However, Juwai, a Chinese international property search portal, says the Canadian market remains a viable option for Chinese investors.
CEO Charles Pittar says China’s international property investment has reached all-time highs and it will continue to set records for years to come. “In January 2017, Chinese consumers made 19.1 per cent more property buying inquiries on international property than in the same month in the prior year,” says Pittar.
Even though Pittar is optimistic about future foreign property investment in Canada, Vancouver might have some competition in the next province over. “We are seeing some buyers shift from Vancouver, and a share of them are looking at Calgary,” says Pittar. “The tax and also the deep freeze it put on Vancouver’s real estate market has discouraged Chinese buyers who would have otherwise quite happily given their money to Vancouver.”
After the foreign-buyer tax was imposed in August, Juwai immediately saw rates of Chinese buyer inquiries for Alberta property shoot up. In August 2016, the number of Alberta property inquiries was up 417 per cent compared to the same month in 2015.
Meantime, in Metro Vancouver, the provincial government began collecting data on foreign purchases of residential real estate in June 2016. From when tracking began until August 31st, just over 13 percent of home sales involved foreign buyers. After implementing the tax, the rate of foreign buyers decreased. In October 2016, foreign buyers were involved in 3 per cent of residential real estate deals in Metro Vancouver and that amount climbed to 4.1 percent in November.
The Real Estate Board of Greater Vancouver (REBGV) President Dan Morrison acknowledges that so far, Vancouver’s market is seeing a slow start to the year compared to 2016. In a statement accompanying January 2017 market activity in Metro Vancouver Morrison says, “while we saw near record-breaking sales at this time last year, home buyers and sellers are more reluctant to engage so far in 2017.”
In a news release from the British Columbia Real Estate Association (BCREA), Chief Economist Cameron Muir says he is more optimistic about the stability of housing demand in the province. “International trade, population growth and consumer confidence will be key economic drivers this year,” he says.