The Impact Of The New Tax On Foreign Home Buyers

Posted on: 22 December 2016

In an effort to slow rising housing prices in Vancouver, the Canadian government instituted a 15% tax against foreign buyers. Though this tax was initially intended to help the real estate market, it may actually have had a negative impact. There are a few ways in which the additional 15% transfer tax could potentially be causing further issues.

Foreign Investing Has Been Limited

A 15% tax is very significant. Foreign investors may now feel as though they are not welcomed in Vancouver and may hesitate to buy into projects. This could have a substantial ripple effect in a city that is as popular among immigrants as Vancouver. Moreover, foreign investors may not want to build commercial projects in addition to not looking at residential homes for sale. This has the potential to cause certain markets to stagnate, depending on how long it takes for foreign investing to recover.

Uncertainty Has Entered Into the Market

Real estate markets tend to be fragile when it comes to economic uncertainty. The prior real estate bubbles and the current economic situation in Canada has made investors especially wary of over-investing. Once a very large event occurs—such as the instituting of a new tax—many investors hold off on investing for some time. These investors want to see exactly what the results will be. An investor intending to purchase a new suburban development may now hesitate because they aren't certain whether foreign buyers will be available.

Condo Developments May Have Issues

As noted, foreign investors are now more hesitant to buy into the market. But when it comes to condos, this is especially problematic. Many condo developments do not break ground at all until there are enough investors. A development, for instance, may not be funded enough to start until 25% of the condos have been sold. But foreign investors are the ones who tend to buy condos before they are developed; residents tend to buy condos after they have already been built. Without the foreign capital, it may become difficult for condo developments to get off the ground. 

Vancouver's real estate market has many worried that Canadians could be priced out of the real estate market. However, it's not clear that foreign buyers are the ones driving up the prices, as they actually account for a very limited amount of real estate sales throughout the country and the province. Rather, it appears that a shortfall of viable housing options is what is driving up the current prices.