Foreign buyers tax fallout seals thousands of deals, sinks others: realtors
Metro Vancouver realtors are saying deals are collapsing because of the new 15 per cent tax on foreign home buyers
JEFF LEE,, CHERYL CHAN, and ROB SHAW
The Vancouver Sun
Realtors and lawyers desperate to get in under the deadline filed a record-setting 15,000 property transfer applications on Thursday and Friday, the last business days before B.C.’s punishing new 15-per-cent tax on foreign property buyers went into effect.
More than 9,200 transactions were filed on Friday, breaking the 2007-2008 record of more than 8,400 in a single day, according to the B.C. Land Title and Survey Authority. It also reported over 5,800 transactions on Thursday, representing nearly as many deals registered at month’s end in April.
The demand was so heavy that it crashed the land titles office’s electronic filing service on both days, the authority said.
Now, as a new dawn breaks in Metro Vancouver’s real estate market, realty companies and real estate boards are reporting the first anecdotes of deals falling through as foreign buyers forfeited deposits on binding deals rather than pay the new tax. And they report evidence of local buyers withdrawing offers in expectation that the market will soften.
Elton Ash, executive vice-president of Re/Max Western Region, said it is too early to accurately quantify how many deals fell apart, but he’s heard from realtors in some of the company’s 30 Metro Vancouver offices of cases where foreign buyers who couldn’t rearrange previously negotiated closing dates have already walked away.
“Our expectation is that there will be a percentage of transactions collapse due to the buyer basically defaulting on the contract,” Ash said.
He and other realty experts say it may take up to two or three months to gauge the full effect of the new tax.
Jonathan Cooper, vice-president of operations at MacDonald Realty, expects many cases to go to court because deposits are held in trust by realtors and usually can’t be released without a court order.
“I think the next chapters in this story are going to be written by lawyers,” Cooper said. “There are going to be cases for sellers trying to get the deposit out of trust and maybe suing the buyer for specific performance trying to get them to complete, and/or for damages if they are not able to find a buyer at a similar price point.”
Rob Philipp, CEO of the Fraser Valley Real Estate Board, said collapsed deals are “100 per cent happening.”
And Dan Morrison, chairman of the Real Estate Board of Greater Vancouver, said he’s heard of instances of Canadian buyers and sellers who backed out because of the uncertainty in the market.
Philipp said one of his offices reported four cancelled deals as a result of the tax, while another reported five failed transactions on Friday alone, with one directly tied to the tax.
“There’s a domino effect here. One deal collapses, there’s so many other deals impacted by that,” Philipp said.
Not all of the cancelled transactions are directly due to a foreign buyer pulling out, but when they do, it could leave sellers in the lurch and force them to pull out of their own property purchases, creating a contagion effect, he said.
The tax might not faze foreign buyers looking for a luxury home in Vancouver’s west side, “but in my area, young professionals will absolutely be impacted.”
The Fraser Valley Real Estate Board covers some Metro Vancouver municipalities affected by the tax, including Surrey, White Rock, Langley and North Delta. It estimates foreign buyers — described by Philipp as mostly middle- to upper-income professionals on work visas who live and work in Metro Vancouver — make up three to five per cent of its region’s average 20,000 sales a year.
“I’m hearing a lot of evidence. Realtors are saying it’s happening to them,” said Morrison. “I’ve had deals die in the last couple days,” although not all of them are directly related to the foreign home buyers’ tax.
Morrison said many of the people affected by the tax aren’t rich, but are here on work permits or working toward getting landed immigrant status.
“These are people who scraped together every cent to get into the market and are now faced with a 15-per-cent tax,” he said. On an Yaletown condo, “that could add up to $150,000 they don’t have, so they will have to walk away from the transaction and lose their deposit or beg, borrow and steal the money from someone else.”
Re/Max realtor Karen Kerr said she has clients who are back to square one after they inked a deal to sell their White Rock house, which was on the market for three weeks.
The retired couple accepted an offer from a foreign buyer on Sunday. The next day, Premier Christy Clark announced the new tax, which would have added an extra $180,000 to the cost. The buyers could no longer afford it and backed out.
Luckily, the sellers had held off putting a deposit on a property they were eyeing on Vancouver Island because the buyers had put in subjects on the purchase. The couple now has to list their house again, this time in a distinctly different market, she said. “Right now, everyone is cautiously putting on the brakes to see how things are going to play out.”
In New Westminster, Re/Max realtor Dave Vallee said he had two cases late last week of local buyers backing out of writing offers because they believe the market will drop by 15 per cent in the coming months.
“I’m getting people coming to our open houses saying, ‘this means the prices are going to come way down,’” he said.
The Greater Vancouver board tracks cancelled sales, but not the reasons behind them, said Morrison. He believes the repercussions of the tax will be felt in the next couple of years, particularly for sales of pre-sale condos and new construction.
In the last four months, there have already been indications the market is slowing down, both Cooper and Morrison said. If prices do drop, will that just be the market taking care of itself or will it be because of the government tax?
“We’ll never know, though I suspect the government will take credit for it,” Morrison said.
Both real estate boards, as well as Ash and Cooper, are urging the government to grandfather already-signed deals.
“At the very least they should have grandfathered the existing deals. Politically, we all knew that the government had to do something,” Ash said. “We’ve got an election coming up next year and it would have been very difficult for the current government not to have done anything and hope to get re-elected. It is just that it was ill thought out.”
Cooper said the tax, rather than stabilizing the market, appears to be harming it.
“When the government intervenes in the market this way and imposes costs that are retroactive … that almost by definition introduces an element of instability in the market.”
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