Foreign investors in British Columbia now pay an extra 15% in property taxes. The new tax was aimed at cooling the sizzling Vancouver housing market but there have been some unintended consequences. Don Campbell, Senior Analyst at Real Estate Investment Network, explains and highlights real estate trends across Canada.
I'm Kim Parlee.
Thanks so much for joining us tonight.
We have a great show, and let's kick things off by talking about real estate, and specifically, it's been about a month since British Columbia's new real estate tax went into effect.
Foreign buyers now have to pay an extra 15% in property transfer tax.
So if purchasing a CAD 2 and 1/2 million dollar home in Vancouver, which is really nothing out of the ordinary now, means they're going to pay an extra CAD 375,000 to close that deal.
So will this new tax cool the red-hot Vancouver market as intended?
Or could it drive growth in BC to a halt?
Joining me from Vancouver is Don Campbell, Senior Analyst at Real Estate Investment Network and author of multiple books, including Real Estate Investing in Canada.
Don, great to have you with us, as always.
And I have to say, I'm actually particularly happy that we're talking to you a month after this tax happened, because I think there's been a little time for people to digest what's going on.
So tell me, your take, what are the consequences and unintended consequences of this new tax going in?
Well, it's very-- it's really quite interesting, what's happening here now.
People said the tax would be the thing that solves the Vancouver real estate market.
Obviously, it's not.
It's a nuanced conversation that has many, many, many different facets around it.
But let's be realistic.
What's going on with this new tax?
Well, frankly, the way that it was implemented seems to be having a lot of more unintended consequences than consequences.
Because we are into our fourth month of slowing down.
The number of sales in Vancouver, they were starting to slow down anyway.
And then this was implemented as of the start of August.
Now, there was no grandfathering of previous deals, et cetera.
So that's the problem that we're seeing right now, is people having to back out of deals.
And it's not just foreign buyers that are being impacted.
It's the people who are selling their homes and the people who are moving up here to work for Microsoft and all the high-tech businesses that Mayor Gregor Robertson and the city are trying to attract here.
Now we've got people who are moving up to fill those jobs having to pay this extra 15% and now having to back out.
And the ripple effect is currently not great.
So it's going to be-- the next 3 months are going to be really, really interesting.
Let me ask you, do you think this is a-- between now and the next 3 months, is this a, we have to get used to this.
It's coming in.
We have to acclimatize to this.
And once that it's in, do you think things will settle down a bit?
Or do you still anticipate-- I mean, that's somewhat scary to hear, that when you're trying to attract smart talent to come to the city to work in these jobs, and they're the ones who are getting out of this.
That's not good news for growth of a province.
Well, I see the unintended consequences-- those people that are moving up being caught in this big net, and it's unfortunate.
And you talked about a CAD 2.5 million dollar house being not out of the ordinary.
But this is affecting people who have saved for 5 years or have moved up here to work for Microsoft, for instance, and have saved for a year, a year and a half to finally buy their condo.
And suddenly, now they have to come up with an extra CAD 20,000, 30,000, which puts them back behind the curve again.
So it's really interesting to watch, but let's be real about this.
Canadians normalize tax at the end of the day.
And look at the land transfer tax when Toronto decided to put on a second land transfer tax.
Everybody was screaming.
Everybody in the industry was screaming, uh-ho, that's it, the end of Toronto housing market.
Well, we know what's going on there now, and it is nowhere near the end.
So what happens is this next 3 to 6 months, this tax will have an effect on the higher end of the market mostly-- mostly.
And then what we'll see is the average sale price look like it's going down because you've taken off a lot of big numbers off the top of the equation.
So when you do your average numbers, oh my goodness, look at the average sale price in Vancouver has dropped.
Well, give it 3 to 6 months as this tax becomes normalized, and you'll start to see the market back to its old self.
Frankly-- and watch the Twitterverse when I say this-- it's really a supply and demand issue.
We've got agriculture land reserve.
We've got ocean.
We've got mountains.
We've got a city that seems to be rather slow in approving projects to build housing.
So there's a high demand of people moving in here.
We're trying to attract high-tech people.
We're trying to attract new jobs into the Greater Vancouver area, but from out of country.
And this tax is counter to that.
And then we saw the federal liberal government the other days announcing, we're trying to bring in Asian investors and Asian workers.
So you see, there's a real mixed message that's going on right now.
As you said, complex and nuanced.
None of this is simple.
All right, stay with us.
When we come back, we're going to have more with Don Campbell.
We're going to be shifting the conversation away from the property tax to a bit of a bubble watch on housing, that is.
So we're going to continue that in our mind, or any comments or questions, we'd love to hear from you.
Send them to email@example.com so we can answer them for you on the show or find the right person to answer them for you.
All right, welcome back.
As promised, we are still here with Don Campbell.
Of course, he is a Senior Analyst at the Real Estate Investment Network and author of Real Estate Investing in Canada.
Don, I always know people love to hear this from you.
Let's do a cross-Canada look at what's happening in the real estate market.
And we start with Vancouver, but just in a nutshell, given what's going on, a year from now, is Vancouver in a bubble?
Are there some investing opportunities there?
There are some investing opportunities, but you're going to find that this tax is going to push a lot of the opportunities, especially for locals, outside of the Greater Vancouver region.
You're going to see the Abbotsfords.
You're going to see the Langleys, et cetera, start to see some more influx of capital.
It's not going to be foreign capital too much, but it's definitely going to be some capital moving out of this region into those areas.
What about Calgary?
What's happening there right now?
Well, Calgary, we're now into 2 years.
And by this point, generally, a government has stepped in to help stimulate the Alberta economy, not in oil and gas.
But whenever we have these recessions and these slowdowns in Alberta, generally, the provincial and federal governments have stepped in, historically, since the '80s.
And that's not happening right now, so we're bound to see some negative momentum in the Calgary market start to kick in.
And that's not fantastic if you're a seller, but if you're a buyer, there is going to be opportunity.
But you have to-- you have to have a 5-year minimum window.
Let me ask you, I'm going to try and go every province.
Winnipeg, what are you seeing there?
Winnipeg, talk about consistent.
They're entering-- there's a bit of a building boom, so you've got a little bit of inventory that's been coming on.
But Winnipeg has been that performer one year after another after another, nice and consistent.
And as I like to say in real estate, you're looking for boring markets because that's where you make all your money.
And Winnipeg is performing just like that.
However, you've got a fantastic Premier there that's bringing other jobs in and bringing investment in, which is buffering it unlike Alberta.
But Saskatoon, right now, you're going to see the purchase demand slow down.
The rental demand will increase a little bit.
And they'll probably be a little bit in oversupply over the next 12 months.
But that should be absorbed if the momentum stays the way it is.
All right, let's head ourselves to the "Big Smoke," Toronto, if you will.
I know that-- I think the taxes are up about 20% from last year.
People have been asking if there's going to be a real estate transfer tax coming to Toronto like there is in Vancouver.
What do you think?
What's happening in Toronto?
Well, very interesting.
The report just came out-- a number of reports have been coming out about the impact of the Places to Grow Act.
And I went back to our notes, Kim.
I've been working with you for a long time.
And we talked about when the Places to Grow Act was edited and upgraded.
We said it would have a negative impact on the housing market.
In other words, the prices would go up, if that's a negative impact.
And unfortunately, that's what we're finding.
It's-- there's a densification.
People-- millennials-- are still wanting the yard.
And there are fewer and fewer yards available, as things get converted to condos.
You're going to see a continued upward pressure.
Let's hope-- and on my blog, donrcampbell.com, I just wrote a whole thing on Toronto.
Please learn from the Vancouver experience before you throw the tax on.
It's something to read.
I hope they don't, but we'll see.
Well, I mean it's a combination, I think, of people trying to control things and a revenue source, quite frankly, for a lot of governments that are thirsty for that revenue right now as well.
CAD 300 billion dollars, yes.
It's a strong rental market.
I was just talking to somebody in Montreal, and we're starting to see a little bit of increase in supply in condominiums, because a lot of projects were started a few years ago.
That should be absorbed.
I'm not too concerned about Montreal.
Montreal is another one like Winnipeg.
I'm sorry to compare Montreal to Winnipeg, but Winnipeg and Ottawa, where they're just consistent performers.
Montreal is a bit more cyclical.
And if you're going to buy an investment property, make sure you understand the Quebec landlord and tenant laws.
I know-- Don, you should know, in the break, told me I could ask him about anywhere in Canada, so let's keep going.
Let's go Halifax.
Halifax-- I know somebody from Halifax.
And it's that if you are on a quest for yield, Halifax is a great spot if you have a 5-year window, because eventually-- eventually-- they're going to actually start hiring people for these federal ship contracts.
You're going to see an increase.
And you saw that initial jump in values when the announcement was made, and now it's kind of softening a little bit.
But that will happen.
If you're on that quest for yield, that's your spot.
Let me ask you, can I get-- do you have thoughts on New Brunswick, PEI, Newfoundland?
Do they fall into your radar?
If Energy East comes through-- which by the way, if Energy East comes through, Quebec could actually have a very good chance of getting even more money if they actually play this properly.
But if Energy East comes through to New Brunswick, guess what.
Lots of jobs.
And that will attract more people into the region, and therefore, increase both rental demand and housing demand.
So yeah, I think that that's going to be your trigger for New Brunswick.
OK, let me ask you, if you back up completely right now, as an investor who's watching this right now-- and again, you run the Real Estate Investing Network, so this is what your focus is-- where should they look?
I mean, you and I chatted about REITs looking interesting right now.
You think that's something that is worth taking a closer look at?
I know I've said "the quest for yield" a couple of times, but that's what's really happening right now.
As the baby boomers are aging, we're looking for income replacement.
And where are you going to get that, In bonds or in negative interest rates at banks, et cetera?
So the quest for yield is now actually driving people to some real quality REITs.
And I understand you have a whole segment after this on REITs.
And there are going to be great opportunities in there on the cash flow side, because as markets get less affordable, guess what.
More people rent.
And if more people rent, a lot of the residential REITs are going to do very well.
Don, always a pleasure.
Thank you so much for joining us.
Kim, my pleasure too.
Don Campbell is the senior analyst at Real Estate Investment Network and author of multiple books, including Real Estate Investing in Canada.
And he joined us from Vancouver.