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Major impact to B.C. real estate market expected from proposed taxes

New tax policies put pressure on Canadians to sell their secondary properties within the province

Albertans anticipated to look within their own province and to the United States for secondary properties

TORONTO, March 29, 2018 /CNW/ - According to a Royal LePage advisor survey, which consolidated the views of 535 real estate professionals in British Columbia and Alberta, the implementation of new housing taxes outlined in British Columbia's 2018 budget have the potential to significantly impact the province's residential real estate market. While previous provincial measures have targeted foreign homebuyers, the implications of the new tax policies will be much more widespread, primarily affecting domestic homeowners located in B.C., Alberta and other parts of Canada who have made the tourist-focused region their second home.

British Columbia's tax policies within its 2018 budget include the introduction of a speculation tax on qualifying secondary homes, an increase to the foreign buyer tax as well as an expanded list of affected regions and an increase to the property-related school taxes and land transfer taxes on homes worth over $3 million.  

When asked, 85.0 per cent of advisors operating in British Columbia said that the new tax policies have hurt consumer confidence in residential real estate across the province. A further 78.0 per cent of respondents believe that home sales will decrease within the first three months of the announcement of the new policies, while the majority (57.3 per cent) stated that prices will also decrease during the same period of time.

"The expected impact of the proposed housing taxes announced in British Columbia should not be taken lightly," said Phil Soper, President and CEO, Royal LePage. "Homeowners across the province will feel the effects as major policy changes like this are also amplified by a drop in consumer confidence. We saw this happen in 2016 when the previous government launched a tax on foreign investors. A small number of international purchasers withdrew from the market – along with a huge cohort of domestic homebuyers.

"Canadian homebuyers from coast-to-coast were already struggling with new federal restrictions on access to mortgage financing," continued Soper. "We expect the impact of the new government's housing tax policies to be even more pronounced as they will force Canadians, Americans and potential buyers from elsewhere in the world out of the market."

While 77.0 per cent of advisors stated that the provincial regulations will cause interest from international purchasers to decrease, this demographic was ranked last when respondents identified the group that was most impacted by the new policies. When asked, 44.8 per cent of advisors stated that the new housing policies most impacted residents of British Columbia, followed by 43.5 per cent who believed it was Canadians who own or are looking to buy property in British Columbia, but predominantly live in other provinces. Only 11.3 per cent of real estate professionals forecast that the policies would impact international purchasers the most.

"We expect that the new taxes will materially impact communities that rely on recreational property markets for the health of their local economy," said Soper. "There will be some Canadians in British Columbia and across the country that will choose to sell their properties in the province as the new taxes add to the cost of homeownership.

"There are further unintended consequences from these kinds of policy changes," Soper concluded. "If property values decline, property tax revenues decline. Local municipalities will have to deal with this added burden."

When asked, 81.5 per cent of advisors said the new tax policies within British Columbia's 2018 budget have already caused interest from Canadians living outside of the province to decrease, with 73.8 per cent believing that the move will lead the group to sell their property. This is predominantly led by the impending speculation tax, which 90.8 per cent of respondents believe will impact sales in the province from prospective homeowners located in other areas of Canada, like Alberta.

These sentiments were verified by advisors in Alberta, with 80.7 per cent believing that Alberta-based interest in B.C. recreational properties will decrease, and a further 75.6 per cent stating that Albertans who currently own recreational property in British Columbia would likely sell their secondary homes. Instead, it is believed that Albertans will now increasingly look within their own province (72.6 per cent) or south of the border (46.7 per cent) for secondary properties.

Survey Methodology

Royal LePage's advisor survey was conducted online between March 14, 2018 and March 20, 2018, polling a total of 400 Royal LePage real estate advisors from British Columbia and a further 135 from Alberta. Responses were anonymously recorded and analyzed independently.

On March 26th, 2018, British Columbia announced amendments to its speculation tax. These amendments do not change the opinion of Royal LePage and its network of real estate professionals. While the size of the new taxes has been reduced modestly in one of the categories, the entire scope of the new tax regime remains in place. The results of the Royal LePage advisor survey are reflective of current expert opinion on real estate in the region.

 

NEWS PROVIDED BY

Royal LePage

06:00 ET

New mortgage rules will drive investments in private lending

MICs and other private lenders currently account for 10% of all new residential mortgages in Ontario. This number will surely increase in the short-term as buyers look for alternative lenders not governed by OSFI. For savvy real estate entrepreneurs, investing in private mortgage vehicles in the coming years will provide stability and robust yield amidst this backdrop of rising rates and tightening regulations.

Real estate investors woke up to an entirely new lending landscape on January 1st. Now, they must meet stricter guidelines to qualify for lending as part of a new policy instituted by the Office of the Superintendent of Financial Institutions (OSFI).

The result is that all mortgage applicants must prove they can still afford payments at a higher interest rate -- the greater of either 2% above the qualifying rate or the five-year Bank of Canada benchmark rate (currently 4.99%).

As you are likely aware, this stress test was already in place for low-ratio mortgages, but now extends to all loans governed by OSFI regulations. Credit unions and private lending entities are not subject to OSFI regulations, but more on that later.

The Bank of Canada has said that these new regulations will affect about $15-billion in borrowing, primarily in the hot Toronto and Vancouver markets. This change holds important implications for first-time homebuyers in these markets, but what does it mean for investors like yourself?

But that’s not all

The above regulation changes are not the only game in town, we are also in a rising interest rate environment with further increases projected.

Indeed, CMHC predicts that the posted 5-year mortgage rate will fluctuate between 4.9%-5.7% throughout 2018, and rise to a range of 5.2%-6.2% in 2019. This is a big deal!

A search for yield amidst change

According to the Bank of Canada, the new rules will disqualify about 1 in 10 borrowers, and in places like Toronto and Vancouver, this ratio rises to 1 in 8. This will drive borrowers to other lending options such as private lending and mortgage investment corporations (MICs). This reality present a great opportunity for investors looking for yield in the coming years.

Bank of Canada Governor Stephen Poloz believes that “people might also look for a lender that is not bound by these new mortgage rules so they can avoid facing the stress test.” This is where private lending comes in.

Bryan Jaskolka, Vice President at Canadian Mortgages Inc., notes that this environment will drive potential buyers to creative financing options. “Instead of settling for cheaper homes, holding off on home-ownership, or being forced into unfavourable lending terms, many home-buyers will move to creative financing options like private lending and MICs.” Indeed, RBC Capital Markets concurs, stating recently that it believes that its borrowers who don’t meet the new rules will turn to private lenders and MICs.


by Contributor09 Feb 2018 | Canadian Real Estate Wealth