Speculation taxes have featured heavily recently in real estate news, and for good reason. The provincial governmental taxation changes impact the market in significant ways and are of special relevance to residential buyers.
At present, across the board taxes are at 0.5%. In 2019, this level will stay constant for B.C. citizens for amounts above 400,000 on vacant second properties. For foreign investors and satellite families, the tax rate will increase to 2%, and for Canadians residents not of B.C., a 1% total will be assigned.
Foreign investors still have the specially aimed buyers’ tax, and in 2019 it increases from 15% to 20%, applied to an expanded area. When the foreign buyer’s tax was announced in 2016, sales significantly dropped off until Q2 2017, when some recovery was seen.
The recently implemented stress-testing (on federally regulated lenders) means the posted rates (by Bank of Canada) for 5-year fixed mortgages have been applied to all insured consumers since 2016, with a 2-point loading on uninsured mortgage owners (or the posted rate if the 2 point addition still comes in below).
Posted averages rose from 5.12% to 5.34% just this year and raised special interest rates were up to 3.39% in 2018 from 2.75% in 2016. These and changed regulations have added to renewed sales volume reductions in Q1 this year.
Changes in Property Affordability
Property Affordability is another factor affecting sales volume at present, being it’s the lowest level since 2001. The median price rose from $510,000 in 2017-Q4 to almost $537,000 in 2018-Q1, and combined with mortgage additions, fewer are investing in ownership at this time (down 6.6% from 2017-Q1).
Foreign investors are now more inclined to sell due to these tax hikes, and it is predicted that residents will fill that gap in time. Population in the area is growing, employment opportunities are improving, and more housing is becoming available, all which point to a steady rise in coming quarters.
Data from the Landcor Residential Sales Summary Q1 2018.
If you want to talk to an Investment Specialist about how the speculation taxes will affect your portfolio, please reach out using the form below or give us a call to (604) 281.1050.