Think the foreign buyer tax reduced sales of Vancouver real estate? Not exactly. Declining sales have more to do with a Chinese clampdown on outflows in December, and new capital controls in January. While we won’t bore you with the details of the new capital controls in China, we will walk you through the impact. Since the new controls, sales declined for the first multi-month period in Vancouver. This is opposed to the growth observed immediately after the foreign buyer tax.
Foreign Buying of Homes Under A Million Dollars Drops
Vancouver sales of places under a million dropped shortly after the new rules in China. February saw 241 sales, a 16% decline from the month before. January saw 289 sales, also a drop of 12% from December. In contrast, from August (the first month BC implemented a tax) to December, foreign sales increased 68%. It looks like foreign buyers actually just adjusted their budget to price in the additional tax, and an actual decline wasn’t seen until China’s move.
Foreign Buyers Purchased Less Property
The number of properties sold to foreign buyers also declined in the past two months. February saw 289 properties sold to foreign buyers in total, a 13.73% decline from the month prior. January saw 335 sales to foreign buyers, a 13% decline from the month prior. To contrast, December saw a 52% increase compared to August, the month after the tax was implemented. If you’re not a real estate nerd, Decembers are rarely busier than August.
Foreign Sales of BC Real Estate
Foreign sales of real estate in BC. August was the first month BC’s foreign buyer tax went into effect. December is when China began cracking down on outflows. Jan 1, 2017 new capital controls came into effect, prohibiting export of capital from China for real estate transactions.
Dollar Volume Decreased Significantly
Declining sales also mean less foreign cash coming into the market. February saw $192.8 million in sales to foreign buyers, a decline of 19% from the month before. January saw $238 million in sales, a decline of 18% from December. This is opposed to the 24.29% increase from August to December. It appears dollar volume showed steady increases after the foreign buyer tax as well, until China began throttling the money supply.
The Appearance of Post-Tax Decline
Foreign buyers accelerated their Vancouver buying spree when the tax was announced. Those that could, would save tens of thousands. This resulted in a massive rush before the tax came into effect, and the appearance of a large drop afterwards. In actuality, this was more of a squeeze event than normal behaviour – people rushed to buy and save a few dollars. The months afterwards saw steady growth of sales to foreign buyers, until China’s new controls.
Personally, I don’t think there’s any harm in a foreign buyer tax. If you’re wealthy enough to have a second home, you’re wealthy enough to pay an extra tax. It would be nice if that tax was being used to fund affordable housing, like in Hong Kong. Either way, don’t buy the hype that Canadian politicians saved the day with a foreign buyer tax, because that had little impact.
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The BC government would take credit for keeping tigers from roaming the streets if they could…actually it’s still early in the election season, maybe they will.
I’m fairly positive Christie Clark saved us from bears in Vancouver. Without her, they would probably just roam into the city and steal our children. *eye rolls*
Taxes are rarely a deterrent, Hong Kong didn’t slow down after a 30% tax! It’s easier to move capital from Mainland to Hong Kong however, since banks will secure against yuan there (as opposed to needing to export in Canada).
We’re eating this up in Toronto too. I go to open houses, and there’s a ton of 30-somethings, aggressively looking around like they expect a little Chinese dude with a briefcase full of money to show up any minute and buy the house.
Then they offer 20% over ask, before the foreign buyer that never existed may show up…then blame foreign buyers. Sure, Vancouver had a problem. Toronto just has the fear of a problem.
China is seeing money come back into the country, not leave now. People buying into the frenzy in Toronto aren’t smart enough to wait for facts to catch up though. They’ll believe they need to buy faster, and pay to prevent the Chinese boogey man until the government saves them.
Ontario Liberal Party will implement a foreign buyer tax to claim they stopped the buying in Toronto too, that’s guaranteed.
Just like hydro rebates are them saving us from electricity costs, and HST rebates was them saving us from high taxes. They create local problems, pretend they have nothing to do with it, then solve them as they balance out.
Actually, the FBT resulted in an immediate 30% decrease in sales in the GVA from the previous month when it was not implemented. I think the more accurate headline was “Foreign buyers tax didn’t cause the market to increase from August-December 2016, China did”. Sales surely would have picked up steam as Chinese were rushing to get their money out of China before the new year, and as the deadline approached it mattered not about the extra 15% necessarily. Their window was closing. I saw a news story that the owner of a Chinese real estate website stated that property searches for Vancouver took a tumble immediately after the tax was implemented, with significant increases to searches for Seattle and Toronto. The FBT had a definite effect on the real estate market in Vancouver, and I think it has even contributed to the Toronto market.
Chinese have been buying all over Canada is weird places like Windsor. So you might want to rethink your logic. Check around. They are buying odd locations.
How is the time of “Sale” to foreign nationals defined? Is this defined as the closing date/possession date when funds are transacted, as opposed to the contract’s subject removal date? If so, this graph could correlate with the effects of a foreign buyer tax because of a ~2-4 month lag time between subject removal and the contract closing.
Thought provoking post. The Chinese capital controls have been around in some form for years. It’s just that now there is a lot of press about new and more rigorous enforcement.
Ask your self why would capital controls be necessary to staunch capital flight?
It’s because the elite in China, who are an order of magnitude wealthier and more nefarious than we can imagine, view China as a bad bet.
Until that perception reverses, money will flow into China to buy cheap goods, and flow right back out to perceived safe havens. As always real estate is but a symptom of the larger economy. But the economy is vastly more global and more complex than historically- which is why Canadians continue to be surprised by girations in the market.
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It may seem that Foreign Buyers may have a contribution in real estate sale in Vancouver but, they are small part of the whole sales and I don’t think we can say it’s Foreign buyers who stop the real estate sale. May be its because the taxes are higher now and the price of the property is also raised in last few years which can be the reason for decrease in sales.