What happened to all the Foreign Buyers and when will they return?

It’s been three years since residential real estate prices peaked in West Vancouver. In August 2016, the Home Price Index (HPI) Benchmark Price was $3,361,000. The British Properties increased 44.4% in the 12 months from August 2015 – August 2016. Ambleside was up 38.2% and Dundarave gained 38.1% during that same period. The North Vancouver market was even stronger. The Benchmark Price hit $1,699,200 in July 2016. Almost every North Vancouver neighbourhood experienced 12 month increases over 40% during that period. Upper Lonsdale was up 52.5% while Pemberton Heights climbed 46.8%. The North Van market cooled after this but slowly rebounded and by March 2018, had reached a new peak of $1,723,200. As of September 2019, West Vancouver prices are down approximately 25% from their all-time highs while North Vancouver has slipped approximately 14%.

What fueled this rapid price increase? Despite the Real Estate Boards’s claim that it wasn’t foreign buyers – it was. Specifically Mainland Chinese. It wasn’t just Mainland Chinese but most North Shore agents would agree that they were the primary drivers. In certain neighbourhoods they accounted for close to 100% of the buying activity.  Iranian buyers have been active on the North Shore for many years and accounted for some of the buying and, of course, local buyers were also active. However, much of it was driven by Mainland Chinese purchasers.

There are several factors responsible for the decrease in Chinese buying activity.

Foreign Buyer Tax
First introduced by the Liberal Provincial government in July of 2016, this tax applies to any foreign buying in metro Vancouver. The tax was originally set at 15% of the property’s purchase price but was increased to 20% by the Provincial NDP government in February 2018.

Property Transfer Tax 
This tax applies to everyone who purchases a home whether local or foreign. It does, however, impact higher priced homes more than moderately priced properties. The tax is 1% on the first $200,000, 2% on the amount between $200,000 – $2 million, 3% on the amount between $2 million – $5 million and 5% on any amount over $5 million.

Speculation Tax
Applies to both foreign and domestic buyers, this tax is charged at a rate of 0.5% of the value home’s value per year. The tax is aimed at speculative buyer’s looking to “flip” a property. Tax is not charged if the owner lives in the the home, it’s rented or the owner pays B.C income tax.

School Tax
Applies to both foreign and domestic buyers. Charged at a rate of 0.2% on homes valued between $3 million – $4 million and 0.4% on properties valued at $4 million and above.

Difficulty Moving Money Out of China
The Chinese central government has imposed much tighter restrictions on individuals transferring cash out of the country. Prior to 2016 cash, could be transferred relatively quickly but can easily take 6 – 12 months today.

Other Markets
Increased property values within Greater Vancouver make other locations such as Calgary, Montreal and Seattle more appealing.

If a Mainland Chinese buyer purchases a $4 million North Shore property today, the Foreign Buyer’s tax would be $800,000. Property Transfer Tax would be $98,000. School Tax would be $16,000. The total tax bill would total $914,000. If a foreign investor purchased a home for $4 million in March 2016, the taxes would have totaled $78,000(Property Transfer Tax). The buyer could have transferred the cash out of China in a week and would not be subject to Speculation Tax or School Tax. From an investment standpoint, I believe house prices need to drop to the point that foreign buyers see enough value to offset these issues.