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Government regulations adding to real estate market costs

Trade-off B.C.


B.C. Ministry of Finance property transfer data for the 16 months through April 2018 indicate that foreign buyers favour Richmond, Burnaby and Port Moody, with foreign nationals active in at least 4% of real estate transactions in the three municipalities.

All other municipalities saw less. In fact, the University Endowment Lands saw no transactions involving foreign nationals, although the 2016 census indicated that it had one of the highest percentages of residences not occupied by their usual residents on census day.

Similarly, Anmore recorded no sales to foreign buyers in the last 16 months. Staff at a presentation centre near Buntzen Lake indicated that traffic was slack, part of the general slowdown at the top end of the market in recent months.

Does slack traffic mean efforts to cool foreign involvement are working?

Eric Bond, principal market analyst with Canada Mortgage and Housing Corp. in Vancouver, said the province’s latest measures against foreign buyers won’t kick in till this fall, so their impact has yet to be seen.

“It would be difficult to make that link,” he said.

However, 65% of listings now are for homes costing more than $1 million while just 30% of sales are for homes greater than $1 million.

“Demand is strongest at lower price points, yet those buyers only have 35% of listings available to them,” he said.

“There’s a lot of pressure in one part of the market, and there’s a building inventory in the higher end.”

But meeting the demand is tough. Single-family builders don’t become multi-family developers overnight, something guaranteed by municipal processing times. Moreover, Bond said there’s currently a record number of homes under construction in Metro Vancouver. Still, resale listings fall short of demand – unless people compromise on location.

“We do have a wide variety of different home products available in Vancouver at a variety of price points,” Bond said. “It’s just there’s a trade-off in location.”

Provincial sales data indicate that first-time homebuyers this year bought overwhelmingly in Surrey (498 purchases) followed by Abbotsford (148), Richmond (123) and Chilliwack (121).

Taxing windups

An arcane but important element in the process of winding up a strata corporation is the consolidation of title. A building with 100 titles becomes a redevelopment site with one.

This is a problem, said Matt Nugent, an associate vice-president with Macdonald Commercial, who has run the numbers for just such a building with an average price per suite of $500,000. The aggregate price is $50 million, which makes it eligible for the heightened property transfer tax on residential real estate worth more than $3 million. Coupled with the new school tax that’s had detached-home owners raising a cry, Nugent estimates that buyers are liable for an additional $15,000 per unit.

However, knowing that they’re in line for that hit, developers will tend to discount what they’re willing to pay property owners. This could work out to a $15,000 loss in the homeowner’s equity. Moreover, Nugent said that if homeowners need that cash to finance a new purchase, they’ll also be looking at additional financing costs.

Condo owners wouldn’t face that scenario in the case of individual sale. It also acts as an extra argument against selling a property whose redevelopment stands to benefit everyone.

“The ultimate victims in the end are the owners of these units,” Nugent said. “Not the wealthy foreigners that are buying luxury real estate. Everyday people.”

It’s a similar story with development sites, said Paul Sullivan, senior partner with Vancouver appraisal firm Burgess, Cawley, Sullivan and Associates Ltd.

School and speculation taxes on a large site worth $30 million could add more than $70,000 to the price of each condo unit, said Sullivan, who crunched the numbers for the Urban Development Institute.

“Total taxes and government charges now exceed 26% of the unit price,” he said. “The NDP wants housing to cost less, yet it just keeps taxing it.” •

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