15 Per Cent Real Estate Tax: Seven Scenarios for Squamish

1. Vancouver buyers unable to buy in Squamish

2. No Impact on Squamish

For some, comparing the Squamish buyer to Vancouver buyer may just be comparing the proverbial apples with oranges. It’s a simply different market and its possible housing market remains unaffected by the introduction of tax in Vancouver. Squamish may be an attractive option for the Lower Mainland buyer but it’s simply not as alluring for the wealthy foreign buyer looking to purchase large trophy properties in prestigious areas of Vancouver, says Salmon. “Wealthy Chinese buyers are looking at multi-million dollar properties in Vancouver, properties that are in the five, six, or eight million range in the British Properties or in the West Side,” she says.

If the market does slow down in Vancouver, it won’t affect the majority of buying and selling in Squamish as it doesn’t have that kind of product to offer, she adds. Local realtor Sean Brawley concurs. There is a specific reason why foreign buyers from Asia choose Vancouver over other areas: It’s a bigger city with more amenities and many have family in the area.

“It’s a different segment of the market and there is always going to be people investing but that is not the majority of the buyer in Squamish so I don’t see any big dramatic change happening in that respect,” he says. For Matthew McClenaghan, the sales director of Solterra, the company’s investment in the town is a proof that Squamish is a good bet for those who are looking for affordable options. Buyers have snapped 70 per cent of the town homes offered under $600k at the Eaglewind subdivision in downtown Squamish and he doesn’t see any slump in the market because of the tax. It’s a different buyer group, he says, with a large number of young families who want a three-bedroom home with expectations of a modest increase every year. “We build for the end user and our target market isn’t the foreign investor and that works very well for Squamish. And let’s not forget Squamish is still affordable to the rest of the Lower Mainland. We sell a one-bedroom, 550 square feet condo for $600,000 and that is our benchmark price. In Squamish, you could get a nice three-bedroom townhome and that is attractive to a lot of young families,” he says. McClenaghan says Solterra would continue to invest in Squamish homes for the local or the Vancouver buyer who wants more space for the family. Local realtor Nancy Hamilton says the young families are flocking to town because of the outdoor recreation and relatively affordable housing options. “The foreign buyer would have been here and we all would have welcomed them but they haven’t come to Squamish and I don’t think they are coming because of this tax,” she says.

Foreign buyer may also simply see the tax as additional cost of doing business which means the status-quo remains, with the only change being more foreign money going into government coffers, says local realtor Ihor Zalubniak.  “Many of these investors want to buy property with offshore money and I think a lot of them will just look at 15 per cent and think it’s just another cost of doing business,” Ihor says. It’s also hard to determine the impact of tax because of the confusion and concern over how many foreign buyers there actually are. Data collected by the BC government for three weeks shows only five per cent of all real estate purchases in Metro Vancouver were by foreign buyers, and all of them were from China. However, in cities such as Richmond and Burnaby foreign buyers make up for 14 per cent and 11 per cent of all buyers respectively, the government says. This is a departure from government’s earlier stance: In June, the BC Ministry of Finance had said only three per cent of the housing sales they tracked in June for three weeks came from foreign investors. And that number was ridiculed by many who felt the government study didn’t provide a clear picture. Similar concerns are being raised now. Speaking to The Globe and Mail, the British Columbia Real Estate Association economist Cameron Muir said the government should have collected at least six months of data before implementing such a tax. The government, however, cites double-digit numbers in Richmond and Burnaby to justify the tax. Irrespective of the data, some experts feel the foreign buyer might temporarily slow the market but won’t have any long-lasting effect as they absorb the tax as another cost of doing business. In some cases, the buyers and sellers may split the cost in half and there are already reports emerging of people innovating on ways to dodge the tax. For wealthy buyers looking to secure their money in a safe market, the 15 per cent would be seen as just another tax. 

“Some of the response to the move was that it wasn’t enough, that the tax will just be seen as the price of doing business by some potential foreign buyers,” Doug Porter with BMO told News1130.

 

3. Tax in Squamish

 

In a few weeks from now, the provincial government may hear from the District of Squamish about extending the tax to Squamish. At a recent council meeting, Mayor Patricia Heintzman said the tax would push the problem of foreign home ownership into the Squamish area. “We should articulate our concerns to the province that they have to start considering Squamish and Vancouver in the same breath when they are considering these policies as our housing markets and labour force are still connected,” she said. Her concerns have found support among some quarters while others have questioned if Squamish could be compared to Vancouver. Developer Grant Gillies of Team Target says a foreign buyer’s tax could give local residents competitive advantage as it creates a more level playing field with wealthy foreign buyers. Supportive of such a tax in Squamish, Gillies says it would prevent a lot of ‘empty home’ phenomenon so prevalent in Vancouver.

“There are lots of dark homes in Vancouver where no one lives, the yards are not maintained and cars don’t move from the parking areas. You want families living in Squamish not bank account,” he says. Realtor Nancy Hamilton, however, says the tax shouldn’t have been applied to Vancouver, let alone Squamish. “I don’t think the government should be interfering with the market. Markets go up and down and you don’t really see any government interference when the markets are down,” she says.

Hamilton says she recently met investors from Asia in Vancouver who want to develop in Squamish but calls from political leaders for a tax in Squamish would only send a negative message about Squamish. The town should instead focus on becoming efficient at zoning and other government permits so there is enough supply in the market.

“When Brian Mulroney was the prime minister, he was wooing foreign investors and we want to turn them away now that they are here in our biggest cities,” she says, adding that having a tax in Squamish is an extremely poor idea that would do nothing but punish the foreign investor.

Hamilton says while people are fixated on foreign Asian buyers, it’s worth remembering there are foreign buyers from other countries who would be penalized if such a tax is implemented in Squamish.

Squamish mortgage broker Dal Dhami says a foreign buyer tax in Vancouver might help cool the market but it would be disastrous in Squamish, which simply doesn’t have the same kind of problem. Having a foreign tax can jeopardize the local real estate industry, one that provides jobs for a large number of people.

“Squamish is simply not at that point where Vancouver is and having a 15 per cent tax here would simply be a nail in the coffin of our economy, much of which is dependent on the local real estate industry,” he says.

Local realtor Eleanore McKenzie is also highly critical of the idea of having a tax on foreign buyers—in Vancouver or in Squamish.

Realtor Zalubniak says the hastily induced tax is a bizarre example of responding to the public pressure. He says the motives of the government are suspect, as it seems the tax is more to do with getting votes than addressing the problem of affordability.

4. Foreign buyer comes to Squamish

After the tax was implemented, Squamish realtor Shabeen Ali says she has heard from as many as four Chinese investors who were interested in buying homes she had listed. But in the end, they decided not to buy as they felt the town had an old stock of housing at a higher price point. Squamish has just started to grow and gained in popularity and she won’t be surprised if there are more foreign buyers looking to purchase properties in the town. Shabeen says she has also heard from curious investors from North Vancouver who are interested in the condo market. She says it’s a possibility they might be investing at the lower rung of the market in hope that prices would increase if more foreign investors become interested in Squamish. The recent friendly takeover of Whistler-Blackcomb for $1.2 billion by Colorado-based Vali Resorts could bring more foreign buyers or investors to Squamish, says realtor Sean Brawley. “Such a deal can possibly bring more wealthy people from the US buying in Whistler who could also see Squamish as a good option to buy a home even for an investment,” he says.

Even though Squamish won’t see the kind of wealthy foreign buyers interested in multi-million dollar homes, the town will prove to be a good option for some foreign buyers, says Denise Salmon, the managing broker for RE/MAX Masters Realty in West Vancouver. She says two foreign buyers, from the U.S. and Britain, were interested in studio units in Vancouver but backed off when they found the new tax would add $55,000 more to their home purchase. With an easy commute to Vancouver, some of those people may consider now buying in Squamish. That being said some of the home prices in Squamish are comparable to what people are asking in North Vancouver, she says. 

“Squamish prices are not that low anymore. It’s quite competitive and we are getting there now. Some prices in Garibaldi Highlands are not far off from prices in North Vancouver in certain areas,” she says.

Although he has sold properties to foreign buyers in the past, local realtor Peter Belostotsky says he hasn’t seen much interest in Squamish from foreign buyers after the tax was implemented. He didn’t discount the possibility of foreign buyers coming to Squamish but says a mad rush to buy in town because of the tax in Vancouver doesn’t seem like a very likely scenario. It’s too early to say if Squamish will become a desirable place to buy or invest in, but the tax in Vancouver can put Squamish in a new light and bring more foreign buyers our way, says mortgage broker Michelle Kelly.

The red-hot real estate market of the last few years has enabled many people to cash out of Squamish. Everyone knows someone who managed to cash out and lives a mortgage-free life somewhere in the interior or in the East—with extra money stashed away in the bank as security. 

What role can these stories play for those who have been thinking of selling now? Will they hold off selling their home in the hope that the following few months will bring more foreign investors to town, raising the price of homes even more so. Realtor Shabeen Ali says she knows buyers who are now having second thoughts about putting their property on sale. They hope that prices would go upwards as more foreign buyers discover Squamish after being put off by the foreign buyers tax in Vancouver. But that may not be the best thing to do, says local realtor Peter Belostotsky. He says Squamish has seen a meteoric rise in the real estate market but the market might be reaching a plateau, from which it might come cool off a bit. If you are planning on selling your home, this would be a good time as market still holds its value, he says. “All over the world, a vast majority of the real estate is bought and sold local and we have a very good market now and if someone is planning to sell, they should,” he says.

Those who wish to wait to explore the potential of foreign investment and its effect on Squamish prices might find themselves winners, but actual investors who come to Squamish might be few, says realtor Ihor Zalubniak. “The actual number of investors who will flock to Squamish to take advantage of the lack of 15 per cent tax is quite small. A few may come but I imagine that the majority of foreign investors have little knowledge of Squamish and the perceived distance/isolation from Vancouver works against them investing here,” he says. 

 

6. Complete market crash

Attracted by its stunning vistas and warmer weather, people from all over the world and Canada have moved to the West Coast and many harbor dreams of owning a piece of paradise. Despite the interest in Vancouver, can the foreign buyers tax flatten the real estate prices? It’s possible, says realtor Carrie Chase.  She points out a similar housing crash in Toronto in 1989 when an overheated market finally gave way. After hitting a record high of $273,698 in 1989, the average home price dropped all the way to $198,150 in 1996. “Can it crash? It absolutely could and it has happened in other markets with Toronto being a prime example in 1989. As well, when people panic or make assumptions, it tends to be a self-fulfilling prophecy. It’s understood that foreign buyers as a whole make up a relatively small proportion of the total Vancouver market, but if local buyers hold off under the assumption that prices are cooling, prices are going to cool,” she says.

The government monitoring of the real estate data for five weeks revealed in July that more than $885 million was pumped into Metro Vancouver’s real estate market by foreign buyers. With lack of quality long-term data, there have been some back-of-the-envelope calculations that estimate foreign buyers have put billions in the real estate market so far. The chief among these reports is one by National Bank of Canada economist Peter Routledge, who “hypothesized” that Chinese buyers put out $12 billion in the Vancouver real estate market.  If the foreign buyer pulls out of Vancouver to another global location or simply move their money to other locations in Canada, the real estate market could be in for some correction, warns Jeremy Kronick of C.D. Howe Institute in a recent editorial published in The Globe and Mail. 

“Foreigners have many other options for investment. And while this may be a good thing for the overheated housing markets in Vancouver and Toronto, it may not be for Canada in general. Canada remains very dependent on foreign capital to finance its current account deficit of $62 billion a year, or 3.5 per cent of gross domestic product. We should beware the risk we run of reducing this flow by making foreign capital less welcome,” he wrote. Even if it doesn’t lead to a complete crash, the foreign buyers tax will cool down a market that seemed to be cooling itself, although a total flattening out seems like a stretch. “Most economists are saying that any impact of the tax will be short term. The geography and demographics of the Vancouver market mean that there will continue to be insufficient housing supply that will keep prices high. There is very little the government can do about Vancouver’s high housing prices, short of a massive infusion of new supply. This is a premium city with huge international and local demand,” Carrie says. There is room for correction in this frenzied market but it’s hard to imagine a complete crash where market drops 30 or 40 per cent, says Denise Salmon. “If something happens drastically in the global economy, then you may have the possibility of a complete crash. The tax may slow down things a little but I don’t think it will have a dramatic impact.”

 

7. Impact only on high-end homes

If the wealthy buyer now ‘discovers’ Squamish, could it mean an increase in prices only of high-end homes in Squamish? It’s something that remains to be seen, says Chase. She says it’s too early to suggest if wealthy foreign buyers would come to Squamish to buy high-end properties in a way that has been happening in Vancouver. 

Since the announcement of the tax, for example, only two houses have sold in Squamish above $1 million. That doesn’t suggest that anyone’s rushing into the community as yet, says Chase. “Foreign buyers have just begun to start looking in the non-Whistler Sea to Sky in the last few months, so it was still very early in the game by the time the tax was announced. Most knowledgeable sources have said that Whistler and Victoria would be the greatest beneficiaries as in general, foreign buyers prefer urban markets. It remains to be seen whether they’ll choose to go to a smaller town, or select a place like Toronto as an alternative,” she says.

Greed and fear can be powerful drivers of a real estate market, says realtor Zalubniak. In the scenario that the tax manages to scare the foreign buyer away, it may mean someone trying to sell at a higher price in Vancouver with an eye on moving to Squamish may not be able to do so at the desired price.  “It may dampen the upper end of the market in Squamish. If you are trying to sell your home for $2 million in Vancouver and now have to adjust the price, you may not be able to buy in the same price range,” he says. And yet, it could also mean more homes on the market, says Chase. The tax may bring in its wake a flood of listings with people worried about the beginning of an end, which means they would try to cash out while they can. “Things are selling much more slowly, and we’re seeing a high volume of price decreases, something we hadn’t seen in a while. The buyers absolutely dried up in July, are starting to trickle back in August, but we’re still not at the frenzied pace we were seeing early in the year,” she says.