Vancouver's new tax puts off Chinese buyers

British Columbia is trying to cool down Vancouver's sizzling real estate market by giving outsiders a strong incentive to keep shopping.

"We can understand the government protecting civic interests, but it should be done in fair and reasonable ways," said a Chinese buyer who made a real estate deal in Vancouver in May that was set to close in September.

Now he suddenly has to pay the additional new 15 percent property transfer tax (PTT).

The new PTT issued by the provincial government of British Columbia on foreign buyers of homes in Vancouver took effect on Aug 2.

The tax adds an extra 15 percent payable to the provincial government on purchases made by foreign corporations and individuals of residential properties in Vancouver.

This is in addition to BC's existing general property transfer tax of 1 percent on the first C$200,000 of a home's value and 2 percent on the remaining value up to $2 million.

"We're not sure if this kind of government decision-making body will impose more policies with no bottom line in the future," said the buyer, who wished to remain anonymous, "and so we will stop, give it up."

The BC government now requires individuals who are not citizens or permanent residents of Canada to file an additional PTT return at the time the transfer is registered. Those who do not pay and try to evade face fines of $100,000 for individuals, $200,000 for corporations and up to two years in prison.

There has long been speculation on the impact foreign investors have been having on the skyrocketing prices of Canada's real estate, particularly in cities such as Toronto and Montreal, but Vancouver has been at the epicentre of the scrutiny. A new study found that 91 percent of detached homes in Vancouver are now over the $1 million mark.

Local residents claim that the region's houses have become the most unaffordable in Canada because of foreign buyers driving up prices. The extra 15 percent tax is an attempt to slow that foreign speculation.

According to BC Premier Christy Clark, there is evidence suggesting that wealthy foreign buyers have raised prices.

Yet, according to the government's own data, foreign home buyers account for less than 3 percent of the total transactions in the Vancouver region.

The Asia Real Estate Association of America (AREAA) says that of the 10,148 real estate transactions between June 10 and 29 in BC, half were in the Lower Mainland. Just 337 of those sales, or 3.3 percent of the total, involved foreign nationals, meaning 97 percent involved either Canadian citizens or permanent residents.

The bulk of the foreign buyers were from China - 258, or 2.5 of the total. The second-largest source of foreign investment was the US, which constituted 0.23 percent of sales to foreign nationals, according to AREAA.

"It was unjustified for people to blame buyers, especially Chinese buyers," said Liu Fei, Chinese consul general in Vancouver. "The skyrocketing house prices and affordability crisis are due to a lack of regulation in the booming real estate market."

Commenting on the new BC tax, Yang Yundong, counsellor and spokesman at the Chinese embassy in Ottawa, said, "The Chinese government always encourages Chinese investors in Canada to abide by relevant local laws and regulations."