January 12, 2017
Assessments are out, sales are down, what’s happening with prices? Sellers aren’t panicking. Yet. But the potential for chaos in the market hasn’t been this high in recent memory. So what’s next?
Last August, the BC government was finally browbeaten into cracking down on real estate purchases made by foreign buyers — purchases that had been blamed for artificially inflating Vancouver’s real estate sector. A 15% tax on the total purchase price of a property is now being levied on overseas and U.S. investors, but the tax has been applied retroactively! Anyone who was under contract to buy a home before August 2nd, but who completed the transaction after August 2nd, would have been spanked by this additional 15% fee. Anyone caught out by this unanticipated expense, and who realized with dismay that they couldn’t afford it, risked both the loss of their deposit and the possibility of legal reprisals by the spurned seller. Here’s what the seers and sages in the provincial government failed to anticipate: Yes, the tax has dissuaded wealthy foreigners from property-flipping, or from parking their cash, as it were, in buildings that stay empty most of the year. But it has presented a punishing array of problems to the very people it was designed to protect.
Consider this representative mini-catastrophe. A longtime home-owner on Vancouver’s west side has decided it’s time to downsize and cash in on his retirement fund (i.e. his real estate investment, his own home). He agrees to sell his house for a large sum to a prospective foreign buyer, and subsequently enters into another contract to buy a beautiful condominium. This harmonious arrangement is obliterated by the arrival of the August 2nd tax — a measure introduced with little warning and seemingly minimal input solicited from realtors or the public. Mayhem ensues. The would-be buyer feels ambushed by this newly disclosed charge, and reneges on the deal — disappearing back into his own country where he’s safe from any repercussions. The seller, having been denied the large sum he was expecting, has no choice but to pull out of his own obligation to purchase the condo, and gets his ass sued off by that justifiably enraged party. The two are enmired in a lawsuit for months, at great expense. Who, then, was really affected by this tax, locals or foreigners?
The problems produced by this impromptu scheme are compounded by another development. Shortly after this provincial tax was introduced to “make real estate more affordable for locals,” the federal government, perversely, decided to make qualifying for a mortgage even harder. Determined to keep Canadians’ debt levels down and prevent the slew of foreclosures we’ve seen in the U.S., the Powers That Be have implemented a new set of criteria for borrowers, and once again people have had mere weeks to scramble and adjust to the new reality. Buyers now have to pass a “stress test,” and technically qualify for mortgages with interest rates almost double those that are presently on offer from the banks — a demonstration, essentially, that they could continue to make payments when rates actually do rise. They groan with frustration as they pay for the sins of those who came before.
And then, into this admixture of confused and competing measures comes yet another development. The government begins to offer interest-free loans to first-time buyers, with no payments due for five years. Do you have up to $37,500 saved to plunk down on a home? The government, in its munificence, will match it — a pleasing development, you might think, until you realize how much debt you’ve been plunged into. Five years later, like an agitated mafioso, they’ll want their money back — and in the meantime, as experts predict, interest rates will have been slithering upwards . . .
How this shitshow is going to end is anyone’s guess, but I’ve got a front row seat and the curtains are about to part for the next act.