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15% foreign real estate tax

E

Inspired Forum Member
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Hi members

Here is an article detailing the new tax that will be implanted August 2nd in the metro Vancouver area for foreigners purchasing property


https://www.google.ca/amp/business....ey-to-other-parts-of-canada/amp?client=safari

I have been hearing mixed conclusions of what people predict will happen to the housing market just curious what peoples thoughts are?

Some people are saying that foreigners are such a small percentage of the buyers that it will not have a drastic effect on the price of housing however in my opinion I see that foreigners are the reason why housing prices have gone up exponentially because they are more willing to place multiple offers higher than locals

This type of tax has been implemented in places like Hong Kong and Singapore for where housing prices have come down about 5 to 10% over one year.

Do you think that Vancouver will have a correction? If so why? if not why? and how much of a correction do you think it would have?
 

Thomas Beyer

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A great bold fast move.

BRAVO !!

A great way to monetize the BC and Vancouver brand.

Of course, massive whining by realtors is to be expected. Some cancelled condo projects in mainly foreign owned towers in Burnaby or Richmond will be announced to scare people. Prices will drop somewhat as buyer and seller eat the difference so 7.5% especially on the inflated ugly end of Point Grey $3M tear downs or Richmond $2.5M crappos.

It will have a cooling effect on the market, for sure, especially on the lower end of the condo market. Keep in mind also the ( dumb and very tough to enforce ) vacancy tax in Vancouver.

Like gambling at the roulette table where a second zero is added. The bank will make more at the expense of the players !

Some of the money will shift elsewhere.

Victoria, Whistler, Sunshine Coast and Abbotsford will get an immediate boost. It was dumb to not not do this 15% tax on foreigners BC wide. Then money will shift to Okanagan and further up V Island, or even to AB or GTA.

Many more shadow buyers will emerge and folks will look for creative ( some legal, some grey and some illegal) ways to get around it. CRA needs to start hiring more auditors.

Missing is a link of land title system to SIN number for every real estate transaction bought or sold. Canada is leaking taxes by the billions annually due to theft from the crown by locals and foreigners alike.

Other jurisdictions, likely Ontario, will follow soon.

Likely there are ways to get around it. What is a LEGAL way to circumvent it ?

I can think of two right off the bat, there may be more.

a) corporation is set up that is owned by local A. Investor B lends money to the corporation at say 30% interest. Corporation buys asset. Legal. Local owner. No beneficial interest by B. Property is sold eventually but the profit is not high enough to pay all interest and the loan. Loan and all interest is paid back to B. A takes a small fee for arranging it, maybe even a share of profit.

b) Local A buys property and gets a mortgage, say 65% loan-to-value. 35% is lent by individual foreigner B. B's loan is eventually secured as a second mortgage, say 20-40% annual interest. Again, like in the first example, no beneficial ownership of B as A owns it. Like in the first example, property is sold eventually but the profit is not high enough to pay all interest and the loan. Loan and all interest is paid back to B. A takes a small fee for arranging it.

Are there other ways ? You can bet some clever lawyers are working on it !
 
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E

Inspired Forum Member
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I agree with your thoughts Thomas also another way around it is through the bare trustee agreement where there are no probably transfer taxes that take place
 

Thomas Beyer

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I think the trustee agreements do not work anymore as there are beneficial owners, and if they change one could argue taxes are due. Again I am not a lawyer but let's assume the province is not that stupid and has smart lawyers on their drafting team too !

I think we will see an IMMEDIATE drop in prices of 7.5-10% as seller and buyer will split this tax with more drop on the lower end of the market than the very high end. Plus the speculation party will cool immediately too.

==> It will have a significant impact !!

Think about your average Point Grey $3M shack: property transfer tax will be over $500,000 ! Ouch !!

Such a property will probably drop to about $2.8 or 2.7M which is the desired effect namely that locals get a 15% price advantage. A major election ploy of course as May 2017 is the next provincial election and the NDP has been barking up this tree for two or more years.
 
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