VANCOUVER (NEWS 1130) – As B.C.’s finance minister downgrades economic projections, experts say the major loss in property transfer tax revenues falls in line with lower real estate sales.
The significant drop of $475 million from February’s budget prediction doesn’t surprise Werner Antweiler, an economics professor with the University of British Columbia’s Sauder School of Business.
“No, not at all because I think we were all hoping for a bit of a downturn in the market,” he says. “A correction in the market that would see a stop to the rapid increases that have contributed to the affordability crisis we have witnessed in the last number of years. The counter-side to that is that we won’t see as many sales, and as we see fewer sales we will see a drop in the tax revenue from this particular type of tax.”
He says it was a sign that something had to give.
“But it will level itself out in the long-term. I do see already the signs that the market’s starting to normalize.”
In July, year-to-date home sales fell more than 16 per cent and average prices were down almost six per cent.
“We have seen a turnaround in the property market over the last number of months, and the lower number of sales is certainly also translating in a loss in revenue from the transfer tax. The link is quite direct to the state of the market. We have seen more of an uptick in the last few weeks, and we will see how that plays out,” Antweiler says.
“It’s basically the market reacting to a number of policies that have come into place, that we have seen trying to dampen the market in the Lower Mainland and, of course, eventually something has to give and that will effect revenues from the transfer tax negatively.”
Investment analyst Dane Eitel says despite the recent uptick, it could take two years for the market to rebound.
“We’re not going to see speculators or investors dip their toes back in yet. Prices are still very much going lower longer. The prices need to go down to $1.4 million, which is a 24 per cent price correction from the peak.”
He says the average sale price for single detached homes sold in August was $1,560,000. And while sales are down for houses, condos are only down 13 per cent.
“Property transfer taxes will have to be lower because you’re putting a cap on this market, when the market, in our opinion, had already peaked out.” he says. “Income for the government will remain at nominal levels for the next few years.”
At a news conference on Tuesday, Finance Minister Carole James said the economic growth for the province is now forecast at 1.7 per cent this year and 1.9 per cent in 2020, down from earlier projections.