I don't look to jump over 7-foot bars. I look for 1-foot bars that I can step over.
— Warren Buffet
Jay & Brenda News
There is now more news about the Foreign Buyer Tax. It's mainly historical. Looking in the rear view mirror. It will take a few more months to have a reliable trend line appear.
So far the effect has been what was projected. The high end of the market has slowed. Sales were slowing anyway even though prices were not dropping. The publicity from the Globe and Mail exposure of corruption in the Vancouver real estate market prompted Premier Christy Clark to look at poll numbers for the upcoming provincial election and throw foreign buyers under the bus. Info that was disclosed about money laundering and non-enforcement of tax laws by CRA was also brought to the public's attention. All of this morphed into a perfect storm fuelled by public resentment of what had been allowed to happen to our beautiful city.
The 15% Foreign Buyer Tax added to the existing Property Transfer Tax has been a successful tactic for the premier as she is now seen as acting proactively on the housing portfolio to protect local buyers with more affordable housing. Unfortunately we are still dealing with demand problems and not solving the intractable supply deficiencies.
It's clear that the market was inflated by investors looking to clean large amounts of cash through our laxly regulated, uninspected real estate market. We invited them in until 2014 through the federal Immigrant Investor program and now through the Quebec Immigrant Investor Program. Canadian citizenship is for sale with an $800,000 interest-free loan to the Quebec government, a $1.6 million net worth and a stated intent to reside in Quebec. The Quebec government will be approving 1,900 applications between May 31 2016 and February 28 2017. Experts figure the cost of buying your way into Canada costs the new immigrant about $125,000. Once admitted and approved immigrants have the right to move anywhere in Canada and quickly disperse to BC or Ontario.
Information about the numbers of students and homemakers with no declarable income who own multi-million dollar homes is now coming under suspicion. According to the Globe and Mail the purchaser at $31.1 million of founder of Canaccord Genuity's home is registered as a student. These investigations are no longer viewed as racist, it's gaming the system by whoever does it. The banks lending practices that favour foreign buyers over local ones are under review. The Sun reports that a loophole in the effort to stop money laundering was created by Canadian lawyers, triggered by BC lawyers. They appealed to the Supreme Court to be exempted from the financial reporting rules required in the banking and real estate sectors through a Charter challenge based on the right to privacy. The Financial Action Task Force, an intergovernmental agency has stated that Canada has a high risk of money laundering activities due to lax enforcement, loopholes as above, and a low level of oversight over sources of funds.
Inspection, enforcement, currency seizures at YVR are having an impact on the amount of money available for investment. River Rock Casino was a favourite place to launder large amounts of cash. According to the Richmond News BC Lottery Corporation rule changes require that the source of the funds used by high rollers to buy gambling chips be verified and as a result the casino revenue has fallen off by 14% in the second quarter of 2016 and the payment to the City of Richmond for social programs and housing has diminished for the first time since 2005. The law of unintended consequences strikes again.
Jay and I have said from the beginning that the new rules should have been introduced 7 years ago before the prices rose so high that local buyers were shut out of the market. At that time any fallout from foreign buyer restrictions would not have impacted as much as they have today. It also would not have allowed the BC government to announce a 2016 $2.2 billion surplus from the Property Transfer Tax collected on every piece of high-priced real estate.
The Financial Post reports that the figures recently released by the provincial Finance Ministry show that in the rush to close deals before August 2 when the Foreign Buyer Tax kicked in $800 million of real estate transactions were registered at the Land Title office on July 29. There were 1,974 property deals with foreign buyers worth $2.1 billion registered between June 10 and July 29. On July 29 55% of all the properties registered involved foreign nationals. There were only 60 transactions with foreign nationals registered between Aug 1-31. Richmond and Burnaby have been particularly affected by the drop in foreign buyers. In Richmond June 10- Aug 1 they were 27% of the buyers and between Aug 2-31 dropped to 1.3% and in Burnaby from 24.2% to 0.5%.
The sky is not falling. Properties are selling and people are looking for homes. It's too soon to say if prices have dropped at the high end temporarily or if the Westside homeowners hoping to finance their retirements just lost a big chunk of net worth. Part of the chilling effect is the 15% addition to the existing Property Transfer Tax but a larger part of it according to one prominent immigration lawyer is the uncertainty of when the next shoe will drop. There is a strong interest in Seattle, San Francisco, Portland, LA from Chinese investors. Right now the Canadian government is considering an extradition treaty with China whereby Chinese agents can come to Canada to identify those they say are criminals who stole funds from the People's Republic banks and other institutions. The Fox Hunt is already active here. There is an outcry against a treaty from most Canadians who have no trust in the Chinese system of courts and justice and capital punishment. The US has refused to consider an extradition treaty and ordered the Chinese government to stop sending bounty hunters disguised as tourists or workers to threaten Chinese immigrants and their families.
West Vancouver has taken proactive steps to encourage developers to sell first to the local market and to buyers who plan to live in the community. Westbank Properties is in partnership with the Sewell family who owns the land to build a luxury condo project in Horseshoe Bay. They ran into trouble when they asked for expressions of interest in Hong Kong and China at $1200 per square foot and then introduced it to local buyers who were outraged at the unaffordability numbers Westbank was projecting. The West Van council insisted on the project being offered to the community first, the Sewell family wanted that too so the application was withdrawn and reworked. The new price is plus or minus $875 per square foot. The earlier numbers were a trial balloon as the Disclosure Statement had not been submitted under the Real Estate Development Marketing Act. For 30 days units will be offered to West Van residents, next 60 days to Lower Mainland residents. No investors, no flipping, no empty homes allowed. West Van council has indicated to other developers that this is the policy they will be looking for on applications.
Vancouver is setting up its vacant home taxation program. It will rely on random checks and self-disclosure, probably helped along by neighbour's noticing and reporting that a home is unoccupied. The city will be working on the principal residence concept so that if you live there or your family or tenants live there then you are exempt from the tax. Who exactly will be exempt is not yet entirely clear. The tax according to the Vancouver Sun will likely be in the range of 0.5% to 2% of the assessed value of the property annually. An interesting experiment. Great if it works. As we said in an earlier article the project will be creating a new job classification of professional house sitter.
We have found that it is harder for builders to arrange financing for new homes. Banks are leery of the effect of the foreign buyer tax on expensive properties that require the two levels of Property Transfer Tax plus GST to be paid by the Buyer. In a rising market the investor buyer paid the original PTT plus GST and left the home vacant to appreciate in value. A little risky these days for reasons stated above.
The real estate market of 2015-2016 is an outlier. A 35% increase in sale prices is not sustainable or a reasonable outcome over one year. A more comparable period to the second half of 2016 is 2012.
We checked out some summer sales numbers and compared them to 2012:
We checked out some summer sales numbers and compared them to 2012:
|Number of sales of detached homes:|
|2016||Aug 1-15||Aug 16-31||Sept 1-15|
|Richmond||16 homes||42 homes||30 homes|
|Vancouver West||18 homes||34 homes||23 homes|
|Vancouver East||28 homes||35 homes||18 homes|
|North Vancouver||32 homes||30 homes||16 homes|
|West Vancouver||12 homes||8 homes||6 homes|
|Burnaby||15 homes||17 homes||25 homes|
|South Delta (Ladner/Tsawwassen)||12 homes||10 homes||9 homes|
|South Surrey/White Rock||33 homes||27 homes||13 homes|
|Squamish*||10 homes||5 homes||8 homes|
*Squamish is outside the Foreign Investor Tax zone and has been a hotbed of Lower Mainland buyers choosing to move there for family and lifestyle reasons. The number of detached homes sold appears to have been impacted by the difficulty of downsizing Metro Vancouver buyers to sell their homes
|2012||Aug 1-15||Aug 16-31||Sept 1-15|
|Richmond||31 homes||36 homes||28 homes|
|Vancouver West||40 homes||38 homes||47 homes|
|Vancouver East||35 homes||38 homes||32 homes|
|North Vancouver||28 homes||17 homes||27 homes|
|West Vancouver||14 homes||17 homes||16 homes|
|Burnaby||20 homes||16 homes||21 homes|
|South Delta (Ladner/Tsawwassen)||17 homes||15 homes||17 homes|
|South Surrey/White Rock||47 homes||39 homes||41 homes|
The mid-priced market of townhomes is busy with local buyers. Buyers are looking for liveability and attractive spaces at an affordable price that is usually found further out from Vancouver. Buyers are a bit skittish about prices, they want to feel they got good value. There is a concern about a larger correction in the market so they don't want to pay too much but they know that mortgage rates are still really low so should take advantage of them while they have the opportunity.
For outside buyers using US dollars or the Chinese Renminbi Vancouver real estate is still a bargain. However, the Chinese overseas investors may be spending their money at home. The stock market and real estate markets in China have recovered and the government is taking a close look at overseas investments. They are encouraging investments in commercial properties but not residential real estate. In Vancouver commercial sales activity jumped 34% in just one quarter. More anon.
More of Julie and Brenda's Great Adventure in Quebec:
We left the Anglo/French/mercantile culture of the Eastern Townships and drove across Quebec deeper and deeper into working class and artists towns of old Quebec society. We drove through Thetford Mines, the location of the last asbestos mine in Quebec which closed after a landslide in 2011. Julie and I were amazed at the huge mounds of earth dotting the landscape. They looked like short mountains in a lunar landscape. They were what was dug out of the mines over 130 years of operation. Compared with the lovely areas along the St Lawrence River this part of Quebec was similar to West Virginia and the coal mining areas of Appalachia and very poor. We stopped for gas and lunch and hit a diner where no one spoke English. The young woman working the grill and the till spoke French, all the customers spoke French until the mother of the young woman spoke up in a few words of English. She was obviously of the generation who was forced to learn English at school. We enjoyed great clubhouse sandwiches.
We headed east to the Charlevoix region which is an artist's paradise. Many famous landscape painters were inspired by the scenery and Massif. Mont Ste Anne ski hill is nearby in the Laurentian mountain range. The St Lawrence widens here due to a meteor strike millions of years ago so there is lots of shoreline and islands.
We arrived at our destination of Baie-Saint-Paul a lovely historical town established in 1678 on the St Lawrence. It's famous for art galleries, architecture and as the original home of Cirque du Soleil. We stayed in a simple inn, Auberge Cap-aux-Corbeaux, overlooking the St Lawrence a few minutes from town. The front garden below the deck featured two woolly ewes wandering around. Very cute. Julie wondered where they lived in winter. The host who spoke English said "in packages in our freezer". A basic fact of life that shocked Julie. Walt Disney's anthropomorphism lives on in the next generation.
We wore ourselves out travelling from gallery to gallery, the art and the town was wonderful and full of life. Julie bought a landscape and I bought my favourite painting of the Ursuline Sisters of Quebec City. Again some of the staff at galleries and bistros spoke English but it really was French Immersion for Julie and me. It was Saint-Jean-Baptiste Day holiday weekend and most tourists were French. We were oddities as English speakers from Ontario and we didn't see many Americans.
Resume the trip:
We departed Baie-Saint-Paul to travel to Quebec City spending the day at Ile d'Orleans, a designated historical district, along the way. Often referred to as the cradle of French civilization in North America it is an enchanting isle about 5 km from Quebec City in the middle of the St Lawrence River. It preserves the French rural heritage with small farms and dairies and maple bushes. It's famous for cheese and maple syrup. It's protected from development so there are artisan food businesses hosted by those running the old farms. Agritourism is a major source of income. The island dates from early settlement days and the woman who toured us through her sugar bush and her maple sugar shack (with a trout fishing attraction out front of the house along the road) told us that her 92 year old father lived in the stone house that their ancestor built when he arrived from France in 1632. Her father rents his fields to a neighbour but still works in his sugar bush. She herself was born in the original house. Nine generations there. She made great maple syrup which I brought home for Jay. She told us that the colour depends on the climate. The colder the maple trees the lighter the syrup. Vermont syrup which is the big competitor is darker than the Quebec syrup.
We enjoyed a picnic that we purchased from Domaine Steinbach which includes a lovely little farmer's tasting shop that provided seating overlooking the St Lawrence River. The food was great, especially the duck terrine and onion jam. All farms in those days were narrow and long so that the river frontage could be defended.
More of Julie and Brenda's Great Quebec Adventure to come next month.
Jay is home and we are back to serious business. It's an advantage to have worked through the ups and downs of the real estate market over many years. We have lots of experience in helping our clients survive and thrive through the changes.
We are busy but Jay enjoys the Blue Jays ball games and the occasional round of golf on his downtime. Effi and he love their walks together.
I am looking forward to a trip to Toronto to celebrate Julie's November birthday.
It's our Fall family birthday season so we are privileged to celebrate with dear ones. We give thanks for our many blessings.
Alec and Lucia are busy with business and renovations at home and on their investment property in Kittsee down the street from their house. It's where Julie and Kathryn and I stayed while visiting them last year. Constantin and Thor keep them on their toes. Alec's company, Foliovision, celebrated Alec's recent birthday with a company bike ride and river beach picnic, swim in the Danube, Frisbee and fun. Lucia, Constantin and Thor joined the party on the beach. Thor ran into the river with the Frisbee. The bike ride through Bratislava was a huge surprise. The EU Summit was taking place at the Bratislava Castle and all the streets around had been cleared of traffic. No one had ever bicycled through the city and along the River Promenade so safely.
Kath and Stef are active as usual. Looking forward to seeing the Fall colours up at Crooked Creek where they are fabulous in October.
Julie and Mary are occupied with a full social life and Julie's demanding real estate practice. Mary is the go-fer for the team. She delivers on her bicycle that she claims is powered by Sauvignon Blanc! The JKT is extremely busy. There is no Foreign Buyer Tax in Toronto but there are demands for it as the market is almost as overheated as this one was. The Ontario government says it's waiting and watching the BC experience.
FYI: We find that working with clients at every stage of life: buying first condo homes, moving up to family size townhomes or detached, then downsizing from the large family home to a condo again keeps us busy. We hope that Life is good for you too.