—— On July 25, British Columbia, where Vancouver, Canada is located, introduced a new housing bill (Bill 28). From August 2, 2016, foreign buyers who purchase properties in Metro Vancouver, except for paying other taxes, are reuired to pay an additional 15% property transfer tax.

New government tax curbs house price bubble

Previously, when residents of British Columbia purchased a house, the first $200,000 Canadian dollars of the house price was subject to a 1% transfer tax; the portion from $200,000 Canadian dollars to $2,000,000 Canadian dollars was subject to a 2% transfer tax; the portion above $2,000,000 Canadian dollars. was subject to a 3% transfer tax.

After the implementation of the new tax for foreign buyers, if a buyer purchases a house for $2,000,000 Canadian dollars, he will have to pay an additional $300,000 Canadian dollars in tax.

CMHC (Canada Mortgage and Housing Corp), a Canadian mortgage company under the Canadian government, stated that the reason for the tax reform is that the Vancouver real estate market is showing signs of a bubble, and the influx of a large number of foreign buyers is pushing up local housing prices.

Reuters and other mainstream financial media have reported the tax reform

In recent years, the real estate market in British Columbia has faced problems such as inflated real estate valuations, rising prices, and overheating markets, and most of the saleable houses are concentrated in the two urban areas of Vancouver and Toronto.

Taking housing prices in West Vancouver as an example, the ratio of supply to demand for apartments reached 121% in May this year. This means that if 100 condominiums are listed for sale that month, at least 121 buyers will compete.

In a public speech on policy reform, British Columbia Governor Christy Clark said: “This policy was introduced to help ensure the affordability of local housing so that the people of the province can continue to live on this land. Living, working and raising offspring”.

Finance Minister Michael de Jong added: “Data collected by the government shows that between June 10 and July 14, foreigners’ total real estate investment in British Columbia exceeded $1 billion Canadian dollars, of which more than 86% of the investment are concentrated in the Vancouver area.”

After the formal implementation of the new tax law, usually only two groups of people will not be forced to pay an additional 15% transfer tax:

  1. Canadian citizens and permanent residents;
  2. Aboriginal residents of Tsawwassen.

But this time the government added a note to the definition of “overseas resident”-people whose primary residence is outside of Canada, not based on nationality.

In other words, even Canadian citizens or permanent residents, if their main residence is outside of Canada, will be defined as “overseas residents.” As we all know, many Chinese who immigrate to Canada still live in China.

Polarized views on the new tax

After the British Columbia government announced the new 15% transfer tax, views on the new policy are polarized:

The local real estate brokers think this is stupid, absurd, and scary.

Locals who cannot afford a house generally think that foreign buyers should pay more tax.

With the introduction of the new tax from the government of British Columbia in Canada, it is foreseeable that the property market in Vancouver may cool down moderately and undergo adjustments.

Many Canadian real estate professionals believe that, with the effectiveness of British Columbia’s policy, Toronto, another high housing price area, would probably face policy suppression.

This article refers to The Wall Street Journal, Financial Times, Bloomberg, and some other media.