July home sales fell 18.9% compared to year previous and 26.7% from last month

Glen Korstrom
Vancouver Courier

Home sales in Metro Vancouver fell 18.9% in July, compared with the same month a year ago, and 26.7%, compared with June, according to statistics that the Real Estate Board of Greater Vancouver released August 3.

Prices, however, continued to rise. A benchmark home in the region is now $930,400, or 32.6% more than a year ago. That price is 1.4% more than the $917,800 benchmark price in June.

It was low sales across the region, however, that has broken a longtime trend.

This is the first time since January, when 2,519 sales closed, that fewer than 4,000 homes were sold in the region, given that a mere 3,978 sales transacted during what is supposed to be the prime sales month of July. 

The sluggish sales may have stemmed in part from the B.C. government’s July 25 announcement that foreign home buyers would have to pay a 15% tax, starting August 2, when they buy a home in Metro Vancouver.  Many in the industry say that announcement put a chill in the market.

REBGV president Dan Morrison, however, said that home sale activity showed some moderating signs in late June and that this sentiment carried into the earlier part of July. 

“We’ll wait and watch over the next few months to see if this marks the return of more normal market trends,”  he said. 

The number of listed properties for sale is also down – 27.4% to 8,351, compared to July 2015, although listings are up 6.9% compared with June.

The market, however, is still considered a seller’s market given that the sales-to-active-listings ratio for July 2016 is 38.6%.

Conventional real estate wisdom is that a market is considered to be a buyer’s market when the sales-to-active-listings ratio is below 13% for a sustained period of time. A balanced market exists when the ratio is between 13% and about 21%. A seller’s market is anything above that.

Last month, the sales-to-active listings ratio was 56.3%.

All classes of residential real estate bore the same basic trend of fewer sales, a slight price increase, compared with June, and a large price increase when compared with last July.

Sales for detached homes fell 30.9% in July, compared with the same month a year ago, and the benchmark price increased 38% during the same two time periods, to $1,578,300.

Apartment properties’ sales fell 7.3%, compared with July 2015, while prices increased 27.4%, to $510,600, in the same two time periods.

Attached properties, such as duplexes, had a sales dip of 20.7% in July, compared with a year ago. Prices for those homes were up 29.4%, during the same two time periods, to $669.000.

© 2016 Vancouver Courier

Experts are expressing doubt a property transfer tax on foreign buyers that takes effect Tuesday will have a significant impact on housing affordability

The Vancouver Sun

The next four to six months will be uncertain until the different players in the market decide how to react to the 15 per cent tax, said Anne McMullin, president of the non-profit industry association Urban Development Institute.

What is more certain, McMullin said, is that the tax is unlikely to improve affordability for average Canadian buyers who are in bidding wars over the stagnant supply of homes in Vancouver.

“The demand isn’t changing,” she said.

Removing foreign interests might bring down the price of $4 million homes to $3.5 million or $3 million in desirable neighbourhoods, McMullin said.

“I don’t think that’s affordable. They’re not going to come down that much.”

The tax legislated by B.C.’s Liberal government last week will apply to foreigners purchasing residential property in Metro Vancouver.

Data released by the province shows that nearly 10 per cent of property transfers in Metro Vancouver during a five-week period from June 10 to July 14 involved foreign nationals.

The province has also put forward changes that would enable the City of Vancouver to implement its own vacancy tax.

The changes are intended increase the existing housing supply that is available to British Columbians, Finance Minister Mike de Jong said moments after the tax became law last Thursday in Victoria.

University of British Columbia professor of economics Thomas Davidoff said foreign interest is a major factor contributing to the high prices in region.

“If you eliminate foreign demand from this market, it is very hard for me to see how prices wouldn’t fall 25 to 50 per cent,” he said.

However, Davidoff added that he doesn’t anticipate the tax will completely drive out foreign buyers, preventing any major drop in prices.

The degree to which foreigners are deterred and the financial impact that will have is what everyone will have to wait and see, he said.

A “home run” for the province would see foreign interest staying steady and as a result, generating around $1 billion annually through the tax, Davidoff said.

The province has said revenue generated by the tax will fund government housing initiatives for renters, low income earners and first-time buyers.

However, McMullin said an aggressive increase in development, not taxes, would be the most effective way to improve housing affordability long term.

“There are still 40,000 people moving into this region per year,” she said.

“If you don’t create that kind of supply that allows for competition in the marketplace for the consumer, you’re going to have high prices.”

While a tax was a necessary step for the province to control skyrocketting prices, Davidoff said he was surprised the province didn’t make additional measures to increase development and density.

“Homeowners tend to like low density in their neighbourhood as is, and mayors tend to respond to that,” he said.

The province could have imposed regulations to prevent municipalities from restricting development, he said, noting that low density housing keeps homeowners happy but hurts everyone when areas where new residences can be built are limited.

“If you want to soften price growth … you’ve got to add density and you’ve got to add apartments and townhomes,” he said.

© 2016 Postmedia Network Inc

As new tax on overseas buyers of Metro Vancouver real estate is launched, agents across region report collapsing sales, says board

Joannah Connolly
REW

With the new 15 per cent additional Property Transfer Tax for overseas buyers of Metro Vancouver homes taking effect today (August 2), local agents are starting to report collapsing deals, according to the Fraser Valley Real Estate Board (FVREB). 

The new tax, passed July 28 under Bill 28, which applies to current and future home purchases closing from today onwards, has caused much concern in the real estate industry over its retroactive nature and lack of exemptions.

The FVREB announced Tuesday morning that it is receiving numerous complaints from local REALTORS® whose overseas buyers are backing out of signed deals, choosing to walk away from their deposits over having to pay an unexpected tax bill of potentially hundreds of thousands of dollars. This is leaving local home sellers, often in purchase agreements themselves, without a buyer – potentially being forced to walk away from their own purchases and deposits if their buyer cannot be immediately replaced.

Charles Wiebe, president of the Fraser Valley Real Estate Board, stated August 2, “Consider the local seller who has proceeded with a deal involving a foreign buyer, turning down other offers and putting the work in, now being left out to dry after their arranged buyer backs out due to the tax. This impacts their next home purchase, and those buyers and sellers along the line.”

He added, “It is unfortunate that, in the wake of the most complex and volatile market we’ve seen, our government has chosen a path that, at this time, will bring significant distress to consumers both local and abroad rather than nuanced solutions.”

The FVREB said that it has written to BC finance minister Mike de Jong to express the board’s and its members’ concerns about the hasty implementation of Bill 28.

Dan Morrison, president of the Real Estate Board of Greater Vancouver, stated July 29, “The Premier’s decision not to exempt transactions where home sellers have an accepted contract in place, with a non-Canadian buyer, that will not close before August 2 is needlessly causing real harm to real people. Our members are scrambling to try and help people understand how their personal and financial situations have been impacted. 

“While it’s the government’s prerogative to implement taxes, people deserve to be treated fairly. They have a right to understand the cost they’re expected to pay when they enter into a legal agreement.”

Real estate commentators have suggested the retroactive implementation of the tax, or even the new tax in itself, might be open to legal challenges. Suggestions have included that the tax might breach the North American Free Trade Agreement (NAFTA), which requires participating countries to treat investors from all of those countries equally, and that it might violate section 15 of the Charter of Rights and Freedoms, which prohibits discrimination on the basis of national origin. 

Neil Chrystal, president and CEO of Polygon Homes, told REW.ca July 28 that he thought the tax was “morally and ethically wrong” and added, “I wouldn’t be surprised if it was challenged legally.”

© 2016 Real Estate Weekly

A market correction is the only way prices will come down

Steve Randall
REP

Vancouver residents are backing the new 15 per cent tax on foreign buyers of homes in Metro Vancouver but think the only way that property prices are going to come down is through a market correction.

British Columbia’s new tax has come into force today but while most in the region support the measure, many doubt it will make much difference.

An opinion poll from Angus Reid Institute reveals that 90 per cent of Greater Vancouver residents agree with the government’s new tax and 87 per cent also back the proposed tax on vacant homes in the metro region.

However, almost three-quarters of respondents believe that foreign buyers will simply find a loophole to avoid paying the extra 15 per cent and there are few who expect home prices to ease as a result of the measure.

Most (82 per cent) also say the government should have done something sooner and similar numbers believe that the high prices are damaging for the metro region.

A significant market correction, although painful for many, appears to be desired with almost half of respondents say they are hurt by high prices while just 18 per cent say they benefit.

Two thirds (64 per cent) would like to see a market correction of at least 10 per cent while 42 per cent hope for prices to drop at least 30 per cent. Among renters, a crash is the hope of 72 per cent.

Copyright © 2016 Key Media Pty Ltd

 

Legal woes, lost deals feared as tax begins

GARRY MARR
The Vancouver Sun

The new tax on purchases of residential property in metro Vancouver by foreigners that takes effect Tuesday is expected to cause further disruption to Canada’s most expensive housing market.

Vancouver realtors spent the past week and much of the holiday weekend scrambling to close deals to beat the 15 per cent tax — at one time bringing British Columbia’s land registration system to a near halt, forcing people to close deals by hand.

Dan Morrison, president of the real estate board of Greater Vancouver, which decried the lack of the notice given to the industry about the new tax, said the sudden shift in policy announced July 25 pushed many deals forward to Friday.

“At this point in time, there is not much we can do,” said Morrison, about trying to close more deals before Tuesday. Provincial officials say Land Tile and Survey Authority Internet portal was open on the weekend, but reported traffic was down.

Still unclear is what will happen with deals negotiated before Tuesday but that close afterwards and are subject to the new tax. That charge is in addition to the property tax transfer rate of one per cent on the first $200,000, two per cent on the portion greater than $200,000 up to and including $2 million, and three per cent on the portion of the fair market value greater than $2 million.

Some industry observers expect deals to fall apart as foreign buyers simply walk away from deposits that in many cases will be lower than the tax they will now face to close a deal.

“I’m not arguing with the provincial government about the merit of a 15 per cent tax, that’s a different conversation,” said Morrison. ” Our No. 1 concern is they did not grandfather existing contracts.

“Some were written two years ago and some might have been two weeks ago. People made good faith decision and the government changed the rules. A one per cent increase, people might have been tolerated. But a 15 per cent increase has given foreign buyers an incentive to walk away. Sometimes (the tax) is two or three times the deposit.”

Tony Spagnuolo, a Vancouver real estate lawyer, said he expects a domino affect in which people waiting to close on a house they are selling will come up short of cash when it’s time to buy because their first deal falls apart.

“A lot will rather walk than close,” Spagnuolo said. “I have a friend who sold his house for $3-million. The guy wasn’t going to close. He’s offshore, so he loses his $100,000 deposit but saves $350,000 not paying the tax.

“(His friend) was going to buy a $1.5 million condo. He needed that guy to close. Thankfully, everything got moved up and done by (Friday). We had to talk (the offshore buyer) into closing.”

The tax could also be challenged in court. Barry Appleton, a managing partner at Appleton and Associates International Lawyers in Toronto and the author of two treatises on the North American Free Trade Agreement, said the tax violates NAFTA, and Americans will be able to sue the federal government. He said the tax would also be in violation of the Canada-China Bilateral Investment Treaty.

“Who needs Donald Trump if you can create you own trade wars,” said Appleton, who believes, the Chinese government itself will be able to seek compensation from Ottawa which would then have to go after B.C. for the money.

Appleton said some jurisdictions that are governed by the treaty — such as Prince Edward Island, which taxes out-of state residents higher, and Mexico, which restricts ownership along the coast — were specifically exempted. There are other local tax agreements that were essentially grand-fathered under NAFTA and other trade deals.

“They needed to have a lawyer look at the policy before they started targeting foreigners,” said Appleton.

A spokeswoman for B.C.’s ministry of finance said the constitution provides that provinces may impose taxes within the province to raise revenue for provincial purposes.

“All legislation goes through constitutional and legislative analysis, and the changes presented in this bill build upon tax policy that has been in place for almost 30 years,” she said.

Keith Head, a professor at Sauder School of Business at the University of British Columbia, there is a specific section in NAFTA that addresses disputes and in most cases it is used to protect companies from unfair treatment.

“What we are talking about here is individual real estate buyers that have to pay an extra tax. That to me does not look like that kind of case we’ve seen in the past. It’s not at all to me an obvious match to intent in past practice to these investment agreements,” said Head.

© 2016 Postmedia Network Inc.

Kevin Buckland and Anooja Debnath
Mortgage Broker News

Speaking in Beijing earlier today, Federal Reserve Bank of Dallas President Robert Kaplan said a rate increase at the next policy meeting in September is still possible even after a report last week showed second-quarter growth was weaker than expected.

Growth data will be revised and Fed policy makers will get two more employment reports before the next meeting, Kaplan, who will have a vote on monetary policy next year, said Monday in a Bloomberg Television interview in Beijing. He said the Dallas reserve bank’s 2016 growth forecast will still probably call for an expansion of just less than 2 percent.

“September is very much on the table but I think we’ll have to see how events unfold and so it’s too soon to jump to a conclusion,” Kaplan said. “We still believe the consumer will be strong in 2016, but it makes us also be very watchful for the next number of data releases to see what trend we’re on.”

The financial markets, however, think that a rate rise this year is highly unlikely.

A gauge of the dollar held close to its weakest level in a month after traders pushed expectations for a Federal Reserve interest-rate increase out to at least mid-2017.

The Bloomberg Dollar Spot Index was little changed after sliding 1.7 percent last week, its biggest drop since April, on data showing second-quarter U.S. gross domestic product expanded at less than half the rate economists had forecast. Morgan Stanley warned the worst is still to come for the greenback as the economy deteriorates further.

“The GDP numbers were a disappointment,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The markets are trying to get a handle on the Fed, on whether or not it will hike interest rates this year or whether or not it will have enough excuses to delay. So the dollar is looking vulnerable on that front.”

The Bloomberg dollar gauge rose 0.2 percent as of 10:09 a.m. New York time, after touching its lowest level since July 1. The U.S. currency was little changed at $1.1166 per euro. It rose 0.3 percent to 102.34 yen, after tumbling 3.1 percent in the previous session.

“Dollar-yen is rebounding after being sold off too aggressively,” said Takuya Kanda, a senior researcher at Gaitame.com Research Institute Ltd. Should U.S. economic data weaken to the point that a Fed rate increase next month is impossible, the dollar versus yen may break 100 this week.

Fiscal Stimulus

The Bank of Japan said Friday it will almost double its annual exchange-traded fund purchases, while leaving bond buying and its negative deposit rate unchanged. Prime Minister Shinzo Abe is due to unveil a 28 trillion yen fiscal stimulus package Tuesday. That plan will now shoulder the main burden of stoking expectations for growth and inflation.

Futures signal less than a 40 percent likelihood of higher U.S. rates by year-end. That’s down from a 49 percent probability on July 26. The first month where traders see better-than-even odds for an increase has been pushed to June 2017, from February on July 26.

Investors are underestimating how many times the U.S. central bank will raise rates this year and next, but they are probably right about the pace being slower than previously thought, New York Fed President William Dudley said. 

“It is premature to rule out further monetary policy tightening this year,” he said in remarks prepared for a speech Monday at a conference in Bali.

Copyright © 2016 Key Media Pty Ltd