New tax on foreign buyers might induce price growth instead - analysis

The new tax on foreign buyers of residential properties in British Columbia was ostensibly meant to cool down the overburdened Vancouver market, but a long-time market observer noted that the levy will precisely have the opposite effect—at least in the near future.
In an analysis published by the Financial Post, James West of the Midas Letter noted that the 15 per cent tax might instead only induce a home price increase of similar magnitude.
“That’s because, for the driving force behind the supercharged environment for home in Vancouver — wealthy Chinese billionaires — the 15 per cent tax barely qualifies as a rounding error. And with the status-obsessed Chinese, that new tax has just made Vancouver one of the most exclusive addresses in the world,” West wrote.
And while the ultimate effects of the tax have of course yet to manifest, Vancouver might serve as a test case for other Canadian markets, which for the most part have played host to wealthy foreign nationals over the past decade due to less stringent immigration regulations.
“If the housing market were to demonstrate any weakness, the Canadian government is in the enviable position of being able to tighten or ease policy to regulate the flow of, and more importantly, the net worth of immigrants into Canada,” the analyst said.
“All eyes in Toronto will be on Vancouver in the weeks ahead to see exactly what effect the new tax ultimately exerts,” West added. “Vancouver is also planning a tax on any empty real estate to curb the practice of buying condos in order to qualify for permanent resident status.”
The new tax, which took effect last Tuesday (August 2), engendered much controversy, and Toronto industry professionals have voiced fears that the city’s homes—especially those in the luxury segment—would become increasingly out of reach of domestic buyers as a result.
“Where are those foreign investors going to go? They're not going to want to pay that 15 per cent, so they're going to now dump it into the Toronto real estate market, which is already hot,” Toronto-based real estate agent Derek Ladouceur said earlier this week.

Related Stories:

Canadian professionals’ statements reflect Chinese fears over new tax

Vancouver agent under investigation for advocating tax evasion

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Mainstream, West Nipissing, Hadashville, Très-Saint-Sacrement, Brookside


  • by MFenn 2016-08-05 12:15:41 PM

    Well, the politicians have gotten their "cover" to put up taxes; meanwhile, all those realtors who in recent years and months have been baying unprofessionally with ethnic-specific hostility to Chinese investors now have to face the consequences of their own actions.
    I really think the realtor organizations ought not to tolerate, from their members, unprofessional, ethnic-specific hostile discourse about their clients and potential clients.

  • by 2016-08-05 12:29:35 PM

    What we really want: that those darn foreigners just send their money to Canada and get nothing in return.

  • by Peter 2016-08-05 11:07:32 PM

    BC Government is the biggest winner on the property transfer tax and now the extra 15% surcharge. How much from this lucrative revenue has the BC Government spent on housing for the general public? Vancouver is closing many schools due to funding shortage and the schools are considered not safe in an earth quake. Where does this property transaction tax go to?

Get help choosing the best mortgage rate

Just fill in a few details, and we'll arrange for a Mortgage adviser to help you find the best mortgage for your needs

  • How soon do you want a mortgage?
  • Name
  • Where do you live?
  • Phone number
  • E-mail address


Is a T.O foreign sales tax a good idea?