Loading articles...

Downturn possible if tax scares off foreign buyers: economist

Last Updated Aug 2, 2016 at 6:56 am PDT

(iStock image)
Summary

A UBC economist feels the levy may lead to potential homebuyers waiting on the sidelines

The 15 per cent tax kicks in today

The provincial government has the ability to either increase or decrease the tax

VANCOUVER (NEWS 1130) – The province’s new foreign buyers tax for Metro Vancouver kicks in today, but what will it mean for our housing market?

Economist Tom Davidoff with UBC’s Sauder School of Business says the biggest question is how foreign buyers respond to the tax. Will they pay the 15 per cent premium now, or will they be turned off altogether?

He says that question will make any buyer hesitant to enter the market. “The real risk, I think, is if the market psychology turns around and in that event we can see significant price declines and then you might see the province try to step in to soup up again foreign demand… in their enabling legislation can reduce the tax down to 10 per cent.”

If they completely check out of our market, he feels locals won’t be able to pick up the slack and prices could drop. “I don’t think local buyers can fill a void left by foreign buyers. My expectation is if buyers truly leave the market, we’ll see a significant price correction.”

Davidoff adds sellers could also be discouraged if they feel they won’t get the price they want for their home. He says people could adapt, however, pointing out some sellers are offering discounts to foreign buyers.

 

A couple of weeks ago the provincial government announced it would start singling out foreign buyers with a new 15 per cent property transfer tax as a way to cool demand in Metro Vancouver’s red-hot real estate market. For context, the tax will amount to $300,000 on the sale of a home of $2 million.

The tax can be increased and decreased between 10 and 20 per cent. Regional districts outside of Metro Vancouver can also be included if the tax pushes foreign buyers to other areas.