Photo: Kenny Louie/Flickr
On Tuesday, BC’s Minister of Finance Carole James announced a government crack down on tax evasion in pre-sale condo assignments, in an effort to address the province’s housing crisis. However, Vancouver-based real estate consultant and architect Michael Geller says the new government rules could make the situation worse by reducing demand from investors.
If approved by the legislature, the new amendments to the Real Estate Development Marketing Act will require developers to collect and report information on pre-sale condo assignments to ensure buyers are paying the appropriate taxes.
“It may take investors out of the market, especially those whose primary motivation was to flip the agreement before they closed. The net result may be a number of projects being put on the back burner because they can’t achieve their pre-sale targets demanded by the bank,” Geller tells BuzzBuzzNews.
Pre-sale condo assignments are a common occurrence in Vancouver. An assignment refers to a transaction that involves the owner of an unbuilt property selling the pre-sale contract to another buyer, while in turn making capital gains off the property’s increased market value. Although developers keep records of pre-sale condo assignments, the sales are not registered with the City and no property transfer taxes are paid.
“For too long, people who resell condos before they have been built have been inflating real estate prices, without necessarily paying taxes on their gains,” says James, in a press release.
Geller agrees that pre-sale condo assignments should be monitored, as they are a likely contributor to skyrocketing prices in Vancouver.
“Far too many people have been reaping capital gains on assignment or flipping of condo pre-sales without paying tax. And I actually do think it has contributed to price escalation particularly because there still is an imbalance between supply and demand in Vancouver,” says Geller.
However, if investors are taken out of the market, Geller says some developers might have to halt project construction due to a lack of buyers.
In addition, these new rules probably won’t do much to reverse the province’s mounting affordability woes. But, Geller does believe they may increase tax revenue.