Foreign Buyer Tax as Predicted – Almost (BCREA Publication)

On August 1, 2016, the provincial government implemented an additional 15 per cent Property Transfer Tax on all residential sales transactions by foreign entities in Metro Vancouver.

To get a sense of how the foreign entity tax impacted home sales in the months following the introduction of the tax, it is necessary to compare today’s sales to the correct counterfactual of where sales would have been absent the tax. This is particularly true given that home sales had already been cooling off since the spring of 2016, and simply comparing a lower level of sales in August to the heights of the market in the early part of the year would dramatically overstate the impact. To provide a more appropriate benchmark, once the tax was announced, BCREA simulated how home sales in the REBGV area would evolve under a no-tax scenario. We also conducted a separate simulation under the assumption that about half of the measured foreign investment for the REBGV area would be pushed out of the market.

 

 

It turned out that the impact of the tax was much more immediate than in our simulation, owing to sales being brought forward to July to avoid the tax. Indeed, total REBGV sales fell 19 per cent in August 2016 compared to our projection of just 8 per cent. However, since then, sales have evolved broadly as expected in our scenario analysis. In fact, since the end of 2016, other than a weather-induced blip in January, home sales have been on an upswing and are where we would have expected them to have been at this point, without the tax. Some of that added momentum in the market is due to a return of some foreign buyers, though to less than half of the levels observed in the summer of 2016.

That isn’t to say that the tax has had no impact. Given the preference for foreign buyers to invest at the luxury end of the market, it is no surprise that the tax has had its largest effect on that part of the market. Sales of homes priced over $3 million ramped up in the first half of 2016, reaching 5 per cent of total Metro Vancouver sales in February. By August, when the tax was implemented, that share had already fallen to 3.6 per cent and continued to decline with the introduction of the foreign buyer tax. However, like the rest of the market, sales of luxury homes have also returned to more normal levels in the first four months of 2017. That experience is mirrored in the overall market for single detached housing, which peaked at 47 per cent in the first quarter of 2016 before falling to only one-third of total sales by the end of the year.
Additionally, there has been minimal leakage of foreign investment outside of the Greater Vancouver area. In fact, the regions that remain untaxed have seen relatively stable levels of foreign transactions following the imposition of the tax. The Capital Regional District of Vancouver Island, which encompasses Victoria, did experience two months in which the share of foreign investment briefly spiked higher, but since August the share of foreign transactions has averaged just 5.2 per cent. Moreover, the absolute level of transactions by foreign entities in the Capital Regional District has been trending lower for months, and the slight rise in the share of sales from foreign buyers is more a function of cooling overall sales than rising foreign investment.

Are We Doomed?

Garth Turner 2008 – “An anti-real estate mood has swept America. Within months it will be here”

MacLean’s Magazine 2012 – “There is evidence the tide may already be turning in Canada’s housing market.”

Homer Simpson season 3 – “It takes two to lie. One to lie and one to listen.”

I don’t predict try to predict the future of the real estate market, anyone that claims they knew the realm estate market in the Lower Mainland would appreciate at such a fervent rate in recent years is a liar – we are all shocked!

At 25 years of age I bought my 1st home. I was afraid $67,000 was a lot of money for us newly weds. Over the years we have bought and sold numerous times. We have moved and we have bought investment properties. Some deals looked great at the time others felt less sure, in the long run all paid off. I can honestly say that in my my 25+ year career there has been no time that I would have regretted buying two years earlier.

I don’t know what tomorrow will look like but I know our population is growing and I know that we are living in the best place in Canada, perhaps the best place on earth. Buy and hold.

Fraser Valley Real Estate Demand Continues

This chart shows the sales of detached homes (houses) in the Fraser Valley and in Abbotsford during the first 20 weeks of 2016 and 2017.

As you can see the number of units sold is off slightly. There is one dramatic dip indicated during week 13 of 2016. This reflects the media storm generated by the bad practices of a few bad apples practicing in the Greater Vancouver market. As a result Christy Clark vowed to crack down on “shadow-flipping” and began an investigation into industry practices. The short duration of the market pause shows the resilience of the region’s market.

Fraser Valley Real Estate Crash?

MLS stats show that February 2017 saw a 41% decline in sales vs February 2016 (1,396 in 2017 vs 2,387 in 2016).

Is it time to panic as a seller or the time to celebrate as a buyer? The impact of a significant decline in demand (buyers) is being lessened by an offset in the amount of supply (sellers). February 2016 saw 34% more new listings hit the market than February 2017 (2,171 in 2017 vs 3,283 in 2016).

What’s the bottom line?

Data for the Fraser Valley shows that prices for all product types (houses, condos & townhouses) remain significantly higher than a year ago. We have seen a small decline in the value of detached homes (houses) while condos and townhouses are stable or inching upwards.

As always I caution the reader not to make decisions based entirely on these statistics as they reflect the Fraser Valley in it’s entirety and regional differences are sure to exist. Speak with an expert, someone with experience and knowledge in your region before you jump to false conclusions.

I can be reached at 604-857-2857.

 

Thank you!!!

I was recently recognized for outstanding sales in 2016. Our office is #1 in our market area and I’m thrilled to be a leader among leaders.

Thank you to my clients, my colleagues and the gang at RE/MAX Little Oak Realty – I could not have done it without you!

Buying, Selling or Leasing. If you or anyone you know has any real estate needs please do not hesitate to call me.

My greatest honor is a referral from a past client, colleague or friend.

In the News Today:

“…data says Vancouver home sale price averages dip below $1-million”

“For the first time in recent memory, the average sale price for a home in Vancouver has dipped below the $1-million price tag.

It’s more evidence the real estate market in Vancouver is coming to a screeching halt.

Zolo, a Canadian real estate brokerage which keeps track of MLS home sales in real time, reports that the average sale price for properties in the city have now fallen to around $993-thousand dollars.

That’s well off the neighbourhood of $1.4-million at this time last year, a 28 per cent free fall.”

I am not arguing with the data provided but I am arguing with the interpretation of the data. The Vancouver market is changing but it is not “coming to a screeching halt” and prices are not in a “free fall”. Typical attention-grabbing rhetoric by the media.

The reality is much less exiting, unless you own a luxury home. Yes Vancouver house prices peaked in the summer of 2016 but they are still up from 2015. What has changed is the amount of luxury home sales, homes priced at $5 million, $10 million or even higher. The rest of the market has not been impacted as much by the 15% foreign buyer tax.

Statistics quoting average sales prices combine all sales regardless of their type or location. Less sales at the high end pull down the average. If you look at a typical east Van house on a 30′ lot prices haven’t moved dramatically.

Prices shift independently by product type and location. As always it is important to work with an expert in the market, someone with the experience and knowledge of the community and the type of real estate you are considering.

Welcome to 2017!

The most frequent comments that I hear this time of year is; “Wow, you must have had a great year!” This is quickly followed by, “what’s your prediction for 2017?”

Yes 2016 was a busy year. A very busy year. The highest number of transactions ever recorded by the Fraser Valley Real Estate Board.

Here are a few stats regarding the Abbotsford residential detached market (houses). Chilliwack, Mission & Langley saw similar trends.

  • Supply/demand ratio peaked in March
  • The number of transactions peaked in April
  • Prices peaked in August
  • The froth (crazy bidding wars, etc.) has mostly disappeared from the market
  • Prices have eased slightly but remain higher than last year.

 

So how does 2017 look?

  • The supply of active listings vs sales is remaining low. If the inventory growth doesn’t outpace the demand prices should remain stable.
  • Mortgage rates remain low and are likely to remain low for some time.
  • BC has the strongest economy in Canada and is likely to remain a leader.
  • Foreign investment has decreased in the GVRD but domestic demand remains strong. Some experts anticipate a resurgence of foreign investment. Not my area of expertise.
  • Trump is a wild card. BC is less dependant on trade with the US than Ontario and others. I’m not an expert on Trump – nobody is.
  • The supply of new ground oriented housing is low and will remain low due to a limited supply of development land west of Abbotsford. Industrial land is facing similar pressure.

I don’t make predictions but people want to live here, Is there a better place in Canada? Combine the demand with limited supply and prices are not likely to make a significant and sustained move downward. This may be a buying opportunity?