It’s been only a few days since the NDP government tabled a budget that targeted out-of-province homeowners with new taxes and there have already been reverberations in the local real estate market, says an industry insider.
“Yesterday (a local realtor) had an offer collapse from a couple in Germany who were looking at moving here. They’re a young couple who moved to Canada for school,” said Elton Ash, regional executive vice president, RE/MAX Western Canada, adding that it’s just one of two deals that collapsed
The couple had the advantage of being able to work remotely as medical researchers, and decided it would be better for them to buy in Kelowna rather than Vancouver, which until this week didn’t have a foreign buyers tax. With news that the Kelowna and West Kelowna would now have the 20 per cent levy applied to foreign purchases, like Metro Vancouver and the Fraser Valley, they collapsed their offer.
“You can safely assume that they are going to immigrate to Canada to be medical researchers,” said Ash. “That’s someone with a great job and contributing to the Canadian economy in a meaningful way, but now because of government intervention they’re reassessing. These people aren’t speculators, they’re trying to live in a great country. It’s a perception that the government is giving the world about closing our doors and not wanting you to come here. It’s very negative. ”
While including the region in the foreign buyers tax is already having an effect, it’s what’s being billed as the speculation tax that may be more problematic to the local market.
In a Kelowna Chamber of Commerce budget debrief, Nicole Watson of KPMG explained that the new speculation tax is aimed at foreign and domestic property owners who are parking capital in real estate. The tax would apply to owners who do not pay income tax in British Columbia. Principal residences are exempt, as are properties with long-term renters.
The tax in 2018 will be 0.5 per cent of a property’s assessed value, a rate that rises to two per cent for 2019 and thereafter. It will be charged annually, separate from regular property taxes. B.C. predicts it will generate $200-million in revenue a year.
The levy will apply to properties in Metro Vancouver, the Fraser Valley, the Vancouver Island regions of Victoria and Nanaimo and the municipalities of Kelowna and West Kelowna. Nowhere else in the Okanagan is being affected.
Ash said this could be of major significance to the local market, especially when the number of condominium units in the pre-sale or early construction stage are factored in to the equation.
“There’s a lot of inventory coming on. Most has been pre-sold, but if people are buying from a recreational point of view at One Water, The Ella or Ellis Parc… these are people who want a piece of the Okanagan lifestyle and will be penalized. They may look at it thinking, ‘maybe I will lose my deposit because that would be cheaper than I will pay (with the speculator tax).’ There’s a real potential for a domino effect to hurt the market in Kelowna.”
It could be similar to what happened in Kelowna when the US housing market collapsed due to faulty loans. Perception caused investments to be pulled and the condo market caved, projects were put on hold and condo unit prices stagnated.
While there is cause for concern, Ash said he hopes that the provincial government clarifies a few points and calms fears.
“When they introduce this in the budget, it’s very grey at this point in time because they haven’t provided specific details around it and Finance Minister Carole James has suggested there could be massaging as far as recreational purchases are concerned,” said Ash. “The whole thing is ill-conceived particularly when it comes to the Interior.”
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