The munch anticipated BC Budget was announced today. It was expected to bring swift measures to the Residential housing market and it certainly didn’t disappoint. The BC Government introduced extreme policies aimed at “moderating” a historically frothy property market. The BC Government introduced a 30 point plan for housing affordability. The full report can be found here, but a recap is detailed below.
Speculators Tax
A speculators tax will be introduced later this fall. The tax will be aimed at foreign and domestic speculators who own residential property in BC but don’t pay taxes here, including those who leave their units sitting vacant. Satellite families- households with high worldwide income that pay little income tax in BC will also be captured by the tax. Up-front exemptions will be available for most principal residences. Up-front exemptions will also be available for qualifying long term rental properties and certain special cases. The majority of homeowners in BC will be exempt from this tax. A non-refundable income tax credit will also be introduced to offset the new property tax. The new tax will apply province wide, exempting rural areas, with a tax rate of 0.5% of the assessed value in 2018. In 2019 the tax rate will rise to 2% of assessed value.
Foreign Buyers Tax Increased
The foreign buyers tax will be increased from 15% to 20% beginning February 21, 2018. The tax which previously exempted much of BC will now be applied to Victoria, Nanaimo, Okanagan, and the entire Fraser Valley.
A Property Transfer Tax on Homes Above $3M
There will be an additional 2% Property transfer tax on homes above $3M. Currently, the property transfer tax is 1% on the first $200,000 and 2% on the balance up to $2M. Anything above $2M is subject to an additional 3% tax. Now there will be another 2% tax on anything above $3M.
Curbing Speculation in the Pre Sale Condo Market
The BC Government vowed to build a data-base on pre sale condo assignments. They will require developers to collect and report comprehensive information about the assignment of pre sale condos. This information will be shared with both the provincial and federal government to ensure appropriate taxes are paid.
Further Measures Aimed at Tax Evasion
The province will also be taking action to close loopholes of beneficial ownership such as numbered companies and offshore trusts. The province will also move to end property tax loopholes on ALR land.
Phasing out of the First Time Buyer Program
While details appear murky, the budget notes they will be winding down the home partnership loan which matched first time buyers with down payments up to 5%. Instead they will be creating a program called HousingHub which will partner with the non-profit sector to develop affordable housing.
More Affordable Supply
The government will deliver 114,000 affordable homes over the next 10 years through a historic $6.6B investment. The province will invest $378M over the next three years and more than $1.8B over the next 10 years into rental housing.
Thoughts & Summary
The NDP Government took an aggressive stance on housing affordability today that defied many expectations. An increase in the foreign buyers tax while also expanding it province wide will certainly shock many of the markets previously not included, such as Victoria and parts of the Fraser Valley, which are still experiencing extreme frothiness. The speculation tax which will be bumped to 2% next year mirrors the BC Housing Affordability Fund drawn up by local economists over a year ago. While details are murky it has the possibility to discourage foreign investment even further, although it’s likely too early to tell until all the specifics are announced. It should also encourage homeowners to rent out vacant units. But again, the devil will be in the details. Lastly, the increase of property transfer tax on homes above $3M is likely overdone, but if the goal is squash that segment even further, mission accomplished. The luxury market has seen sales dip to decade lows while pushing prices down roughly 10-15% from the peak.
