Experts advise it is a good time to rethink your strategy both as a buyer and a seller
The skyrocketing real estate market last year made housing unaffordable in the Lower Mainland. The BC government stepped in to take a charge and levied 15% Foreign Home Buyer’s tax. Foreign nationals who buy real estate in Metro Vancouver have to pay an additional property transfer tax of 15 per cent. It was introduced in July with its effective implementation on August 2nd.
The tax made many realtors and investors apprehensive about how the decision would affect housing deals in progress. On the other side, locals who were complaining of foreign buyers’ stranglehold on housing market were ecstatic as they danced a jig around their rented living room happy that now they can buy that dream property in this slice of heaven we call Metro Vancouver.
But did anything actually change after the tax? Gurdial S. (Dale) Badh of RE/MAX Real Estate Services feels the decision is just an election ploy. “I think the BC officials in their wisdom felt they needed to do something after ignoring it for more than three years and saying it’s a healthy market and did not want to interfere. To simply put this is an election ploy by the current government to win voters over to show they are looking after them.”
Though we won’t know, for a while, the full domino effect of the tax, as it takes time to get statistical data, this is what has happened.
Experts thought the tax will not affect the market much, the housing market seems have slow down a bit. Sales of homes, especially those over a million dollars did plunge once the tax was implemented, coming to a screeching halt to the point almost everyone noticed that the housing market fell flat in the month of August. Many foreign buyers moved south to Seattle, there are reports of how the housing market there, is now starting to get heated up. Many buyers also went to Toronto, the other housing hotbed in Canada.
While the hot unaffordable real estate market has cooled down a bit affecting the local sellers, it has set very stretched the housing prices so high, a middle class person still cannot afford to buy what they dream.
A young entrepreneur, who did not want to be named, is still struggling to get into the market. Yes, the tax cooled down the astronomical prices that were record breaking for Metro Vancouver, but the last sold price established is still the benchmark price sellers want. He is finding that instead of going very far into the suburbs, he can now look closer to Vancouver to purchase his first home.
“I thought I might have to look in Port Coquitlam or further, but now I’m looking in New Westminster or Coquitlam. But what I can get in these two communities is still not what I want, but I guess I have to compromise.”
On the other hand it had far reaching affects on local sellers. What the BC Liberals didn’t foresee or chose to file it away as ‘collateral damage’ after the fact, was how this tax affected negatively for many locals. One forgotten point; who did the government think the foreign buyers were buying from? Other foreigners? No. It was locals.
This tax affected those who live here and had their homes up for sale or had bought at the peak. Because the BC Liberals didn’t grandfather the tax on deals already in the pipeline, many deals fell apart. Sadly this had a domino effect on many local sellers and buyers.
One of the consequence is, Badh’s says, “These owners, in most cases had to adjust the sale price to compensate for the Tax or have the deal collapse as in most cases they had purchased another property.”
There are stories of savvy investors who had bought houses in the last few years and made money during the peak months when it seems like everything was selling thousands of dollars above asking, in some case hundreds of thousands. There are also stories of investors who were too late to the party and are now stuck with investment property that they thought the foreigner buyers would buy,but now that option is off the table. Some of these investors had spent money renovating the property which now sits idle in the market with no buyers.
On the other hand there people whose business is housing. “I am stuck now,” laments Mr. Singh*(name changed).
Unfortunately for some sellers who are professional fixer uppers, this tax has hurt them a lot. Mr. Singh buys older properties and renovates them for resale at a higher price, thus making a legitimate living. He bought when the price was increasing, thinking with a quick renovation he can capitalize in this market. His three-month turnaround time came just before August and now he’s stuck with property not moving at the price where he can at least recoup his expanses. Because of the tax, he is now stuck holding investment property far longer than he normally would have.
He is not the only one. There are numerous stories of people who are stuck holding more than one mortgage. The only strategy for them is to sell at a lower price.
Mr. Singh understands what he needs to do, he’s just hoping and waiting the market will bounce back.
Since the announcement of the tax, one can find many homes still on sale weeks later. Sellers used to the red-hot market where it seems everything sold in one weekend, are now upset that there are no buyers for their property. When further research is done, it’s very apparent to why the houses are not selling; because the listing price is high reflecting a market that has moved on. This is when sellers need to rethink their strategy.
Don McDougall, with over 30 years of experience in real estate sales and a co-owner of Remax Performance Realty based in Delta, says, “Homes are selling if priced right.” He cited examples of homes that sold fast because the seller listened to the realtor and priced the house right. These can be easily verified on real estate websites.
McDougall also advises that now is a good time to buy as the market is not in a multiple offer situation anymore and to get a realtor who is actively working in the market to help with the process.
By Harvinder Sandhu