Vancouver’s Foreign Buyer Tax Didn’t Stop Real Estate Sales, China Did !!

(April 03, 2017 )

Think the foreign buyer tax reduced sales of Vancouver real estate? Not exactly. Declining sales have more to do with a Chinese clampdown on outflows in December, and new capital controls in January. While we won’t bore you with the details of the new capital controls in China, we will walk you through the impact. Since the new controls, sales declined for the first multi-month period in Vancouver. This is opposed to the growth observed immediately after the foreign buyer tax.

Foreign Buying of Homes Under A Million Dollars Drops

Vancouver sales of places under a million dropped shortly after the new rules in China. February saw 241 sales, a 16% decline from the month before. January saw 289 sales, also a drop of 12% from December. In contrast, from August (the first month BC implemented a tax) to December, foreign sales increased 68%. It looks like foreign buyers actually just adjusted their budget to price in the additional tax, and an actual decline wasn’t seen until China’s move.

Foreign Buyers Purchased Less Property

The number of properties sold to foreign buyers also declined in the past two months. February saw 289 properties sold to foreign buyers in total, a 13.73% decline from the month prior. January saw 335 sales to foreign buyers, a 13% decline from the month prior. To contrast, December saw a 52% increase compared to August, the month after the tax was implemented. If you’re not a real estate nerd, Decembers are rarely busier than August.

Foreign sales of real estate in BC. 

August was the first month BC’s foreign buyer tax went into effect. December is when China began cracking down on outflows. Jan 1, 2017 new capital controls came into effect, prohibiting export of capital from China for real estate transactions.

Dollar Volume Decreased Significantly

Declining sales also mean less foreign cash coming into the market. February saw $192.8 million in sales to foreign buyers, a decline of 19% from the month before. January saw $238 million in sales, a decline of 18% from December. This is opposed to the 24.29% increase from August to December. It appears dollar volume showed steady increases after the foreign buyer tax as well, until China began throttling the money supply.
The Appearance of Post-Tax Decline

Foreign buyers accelerated their Vancouver buying spree when the tax was announced. Those that could, would save tens of thousands. This resulted in a massive rush before the tax came into effect, and the appearance of a large drop afterwards. In actuality, this was more of a squeeze event than normal behaviour – people rushed to buy and save a few dollars. The months afterwards saw steady growth of sales to foreign buyers, until China’s new controls.

Personally, I don’t think there’s any harm in a foreign buyer tax. If you’re wealthy enough to have a second home, you’re wealthy enough to pay an extra tax. It would be nice if that tax was being used to fund affordable housing, like in Hong Kong. Either way, don’t buy the hype that Canadian politicians saved the day with a foreign buyer tax, because that had little impact.

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