Vancouver is the latest major city to impose a specific tax on foreign investors acquiring real estate. Many of those concerned about the spiralling cost of property in Vancouver, and other areas of Canada, have reacted with joy to the move. Even though these particular policies may curry favour with the electorate what will they do for the long-term property market? Will they force foreign investors to look elsewhere?
Vancouver property tax
On 2 August the Vancouver authorities introduced a 15% tax on the purchase price of real estate acquired by non-Canadian investors. In theory this has the potential to raise significant funds for the authorities although the main reason was to take some of the heat out of a more than buoyant Vancouver property market. When you bear in mind that property prices in Vancouver were increasing by 39% per annum before the foreign investors tax there was an argument that the authorities needed to do something.
Has the tax had any impact?
Interestingly August saw a 16.7% reduction in the average price of a detached home in the Vancouver which is exactly what the authorities were looking for. The fact that the average value still stands at £856,000 is still an issue but perhaps this move by the authorities has taken some of the heat out of the market. Experts are now monitoring transaction levels and average prices very closely to see whether this significant impact in the short term continues. If it does continue then other areas of Canada will no doubt follow suit which could change the whole dynamics of the Canadian property market.
Foreign taxes around the world
It may come as no surprise to learn that Vancouver is not the only area which has introduced additional taxes for foreign investors looking at real estate assets. The likes of Melbourne, Sydney, Queensland and areas of New Zealand have also introduced additional taxation but not at the level set by the Vancouver authorities. Others have also followed with more indirect taxation of foreign investors which does not necessarily grab the headlines but can raise significant additional funds for government coffers.
On the flip side of the coin, Chinese authorities have reduced the hurdles and the cost for foreign investors looking towards Chinese real estate – but this may be more to do with the state of the Chinese property market at the moment. It is also interesting to see that this particular move by the likes of Vancouver and some areas of Australia has occurred just as the Chinese overseas investment bandwagon gathers pace. There are many areas of the world which have been directly impacted by Chinese investors looking to balance their investment portfolios, offering some protection from domestic market issues.
It will be very interesting to see whether additional taxes aimed at foreign investors in various real estate markets around the world do have a medium to long-term impact. There was always going to be a short-term impact due to the “shock nature” of the move but history shows us that investors more often than not find a way round these challenges.