The NDP Government’s New Budget
Real Estate Related Changes in the new BC Budget
The NDP Government’s new Budget was announced this week and the changes will affect the higher end market in Kitsilano (and throughout the City), while the condo and townhouse market should remain the same, that is, busy!
1. Changes to the Foreign Buyers Tax
This is the biggest change in the new BC Budget and will have an impact on all levels of the market, though the higher end market and pre-sales will be most affected. There will be an immediate increase to the foreign buyer tax from 15 per cent to 20 per cent, and an expansion to Kamloops, Kelowna, Greater Victoria and the Fraser Valley. I’ll be waiting for more clarification on exactly which areas are included, though this is a big change as foreign buyers who were looking to invest in other busy areas of the province will now have to pay the tax, else, they’ll all be pushed to the other areas of the province where the tax isn’t applicable (i.e. is Whistler and Squamish included? If not, I’d imagine these areas will see some foreign investment dollars).
Expanding the foreign buyers tax to areas outside of Vancouver may also push some investors back to the Vancouver market, since if they’re going to pay the tax, they may as well buy the property in the biggest city. This change comes into effect immediately, which means foreign buyers who are already under contract to purchase a home, but haven’t completed yet, will be forced to pay the tax.
2. Increase in Property Transfer Tax on Properties over $3-million
The new BC Budget also shows a hike on the property transfer tax from 3% per cent to 5% per cent on residential properties worth more than $3-million, as well as an increase on school taxes. The new calculation of the property transfer tax is:
- 1% on the first $200,000,
- 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000,
- 3% on the portion of the fair market value greater than $2,000,000, and
- if the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000 (effective February 21, 2018).
This won’t make a difference to anything less than $2.5-million, though the Government will now have a bit more money to spend on other housing initiatives. This, coupled with the increase in foreign buyers tax, has made expensive properties that much pricier, which is why we might see a drop in activity in these multi-million dollar markets.
3. Crackdown on Fraud and Speculation
The NDP Government had previously released some damning information about the amount of fraud happening through BC Casinos and Real Estate, so we knew they were going to put a lot of effort into ensuring the loop holes are closed while cracking down on fraud and tax evasion in the housing market. We are still waiting for exact details on what this “speculation tax” will be, but they said the new tax will be on those who buy B.C. properties but don’t pay income taxes in the province, with exemptions set for primary residences and long term rental properties. This means that vacation properties owned by people who live and work outside of BC will be taxed, along with investment properties that stay vacant.
Along the same lines, they will be creating a new database on pre-sale condo assignments to make sure taxes are paid on pre-sale flips, i.e. capital gains and potentially property transfer tax? We’ll have to wait to see what the exact details of this new rule will allow.
4. Help for Renters
The NDP Government has already closed the Fixed Term Tenancy loophole by not allowing any fixed term leases (so every lease going forward is month to month, except in extenuating circumstances), but there will also be looking at toughen rental laws while allowing strata corporations to levy more fines and penalties against those who break the rules. Having said that, the City of Vancouver has approved short term rentals (as long as Owners follow strict rules and pay appropriate taxes) though it will be interesting to see if Strata’s continue to forbid short term rentals in their buildings.
5. Mortgage/Financing Changes
The NDP Government has cancelled the Liberal-created B.C. Home Owner interest-free mortgage program for first-time buyers, using that money (already collected) to create a new “Housing Hub” agency that will work with non-profit groups, churches and the private sector to find land for housing projects. This was a useful program, but not many Buyers could benefit from it, so I don’t think this will have a big impact. Unfortunately for those few Buyers who needed the extra down payment help to get into the market, this doesn’t help. I’ve heard that the program will be available until March 31st, but Buyers who are pre-approved before then might have 6 months to actually use the program to purchase. Talk to your mortgage broker about the details, and let me know if you need a referral to a good broker!
Give me a call at 778-387-7371 or email me at [email protected] if you have any questions.