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2018 Expanded Foreign Buyer Tax and New Speculation Tax. A Rant.

By now, I’m sure you’ve read the headlines about #BCBudget2018, so I won’t go to pains to explain what the newly announced taxes are, but I will say that the more time I have to absorb the news and consider the implication of these clumsy, poorly thought out measures, the more I feel the need to rant. Here we go.

First, the “speculation tax,” actually a new, extra, annual, provincial property tax on property owners who don’t reside in the property they own. What? It’s good optics for the NDP to appear to be doing something to curb real estate speculation since most people believe speculation is causing prices to rise, however, a true speculation tax would be better designed to hit actual speculators. Case in point: anyone flipping a property within a short period of time won’t face a heavy tax burden from the new “speculation tax,” right? Conversely, someone who holds a property for years will pay tens of thousands, year after year - but that person doesn’t strike me as a speculator. What about those who speculate on pre-construction condo assignments? They’re selling agreements, not property, so …? The budget announcement suggested the government intends to put measures in place to track pre-construction projects, but it’s a hard market to track, with vast amounts of time between initial deals, contract flips, and property titles being registered. The bottom line? I’m not against the idea of implementing taxation to curb property speculation, however, this tax misses the mark big time, and many Canadians and British Columbians with second homes here will be unfairly affected.

Further on that point: it’s no surprise to be told that left-of-centre governments tend to favour progressive taxation, where higher earners are taxed at a higher rate. But what surprises me is seeing this government make the leap from taxing citizens’ incomes to taxing their equity and property assets. British Columbians didn’t sign on to having their provincial government expropriate funds from their privately held assets. Or to having the provincial government force them to rent out their private assets through measures like this as if those private assets were public housing stock. The finance minister suggests that there will be a tax credit in place to lessen the burden on BC residents - details are scant at this point - and she hasn’t indicated that anyone would be exempt on a second home used part-time, like a cottage, or small pied-à-terre in another city. Residents who have worked hard enough and made the sacrifices to enjoy the use of a second personal property have surely already been taxed through the income they earned - and are we forgetting that they’re already paying annual taxes on both of those properties?

Secondly, the expanded Foreign Buyer Tax. Expanding the FBT outside of Vancouver simply isn’t supported by the numbers we have at hand. We haven’t seen vast sums of foreign capital driving up the market in Victoria; in fact, VREB’s figures suggest that about three quarters of the market activity here is just amongst locals, with only around three percent selling to buyers who reside outside of Canada. In Vancouver, the reported numbers are higher, but still, the initial introduction of the tax had little effect aside from a brief stall in the market while everyone took their foot off the gas for a moment to see what was going to happen, followed by a rapid return to rising prices.

Questionable foreign money does seem to be a serious issue in the lower mainland, which is a large enough market to consistently skew province-wide figures. There is no shortage of anecdotal chatter amongst Vancouver real estate industry folk, and a number of more prominent voices stating publicly that it’s a bigger problem than the statistics produced by the real estate industry or various levels of government suggest. The excellent report recently released by Transparency International Canada (read it here) about the various anonymous models of property ownership available to speculators and foreign purchasers is, frankly, eye opening. I’d bet most people have no idea. To that end, a much more meaningful move would be for the government to start pursuing enhanced disclosure around property ownership. The problem with this, of course, is that it costs money up front, rather than generating new tax revenues. Ugh, sounds like work. The real light about all of this goes on when one considers that all this new taxation announced in the budget is expected to raise $5.5B more for government coffers - which should neatly cover the $5.2B in new spending that was announced in the budget.

And the cherry on top? The finance minister’s own admission that the government specifically designed these measures to push down the real estate market, a statement that in itself suggests that the government is willing to risk putting thousands of homeowners underwater on their properties, owing more money than they’re even worth. Even more appalling, that the government openly admits that it didn’t thoroughly consider or predict at the impacts these manipulations would have on the housing market before putting them in to place. That is beyond irresponsible.

I’m already turning a few of the points from this rant into a strongly worded letter to the finance minister expressing just how galled I am at their short-sighted, tax-and-spend approach, opportunistically targeted at real estate as it’s an eye-catching source of news headlines. I encourage you to do the same. Not to be forgotten: real estate and construction are among the largest contributors to BC’s economy as a whole. I hope for my clients’ sake and yours that all the worst case scenarios I imagine don’t unfold as we deal with the as-yet unforeseen consequences of Budget 2018. Stay tuned.

Dirk


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GUEST BLOG: What's the Deal with Property Assessments?

This week's blog post courtesy of Paul Macara, licensed broker with The Mortgage Group in Victoria - macaramortgages.com


By now, you’ve probably received your 2018 property assessment in the mail. And, like most of your neighbours, you’ve likely seen an increase in your assessed value when compared to last year.

Property assessments are double-edged. On one hand, an increase in value is thought to speak to the actual value of your property, while on the other hand, an increased assessment might mean higher taxation.

But is this true?

Does a property assessment reflect your property’s true value AND will an increase in assessed value increase your property taxes?

Below are common answers to frequent questions about property assessments.

How are Property Assessments Conducted?

When conducting an assessment, BC Assessment considers properties in similar areas comparing recent sales prices between properties sharing similar characteristics. For example, an article in the Globe and Mail outlines determining the value of a 5,000 square foot home in Surrey, situated on a 10,000 square foot lot. To make a determination of value, BC Assessment would review sales prices for homes of a similar size and on similar sized lots. In addition, they would consider properties of a similar age, style, and location.

To help make determinations of value, BC Assessment takes advantage of additional tools, including:

  • The review of building plans and permits
  • Street front photography
  • 3-D modeling of condominiums
  • Satellite imagery

While reviewing properties from their exteriors is simple enough, more challenging is assessing the state of a property’s interior. To help gauge certain property interiors, BC Assessment may send a letter to the homeowner(s) of properties with significant exterior renovations, as these often signal interior renovations too. The letter acts as a formal inquiry into the state of interior renovations.

Are Property Assessments a Reflection of Real Value?

Not necessarily, no. Many buyers and sellers like to defer to the assessed value of properties when it comes to negotiating a better price (as a buyer) or defending a higher value (as a seller), but truthfully, the assessed value shouldn’t be mistaken for the current real estate value.

A comparative market analysis conducted by a Realtor will use very recent data, while property assessment data is often stale (a few months old) by the time assessment notices are received. The best determination of value is by reviewing recent sales of similar properties at the time you want to evaluate data. As you can imagine, in fast-paced markets, the value of homes can shift (up or down) in only a matter of weeks.

If my Assessment Increased, Will This Signal an Increase in my Property Taxes?

Interestingly enough, no. Again, upon reading the Globe and Mail article, it turns out that an increase in one’s own property assessment won’t signal an increase in taxation only when that assessment has increased higher than the average change for that property class in a given municipality.

Curious about your Neighbors?

If you’re curious to see how your property value stacks up to that of your neighbours, it’s beneficial to make use of a tool through BC Assessment, called e-Value.

Click Here to give it a try.

In Compete Disagreement with your Property Assessment??

Those who feel their property assessment is inaccurate can appeal the assessment. Find additional details here.

Of course, appealing the assessment will require reliable statistics. In other words, you wouldn’t be able to verbalize why you think your home should be assessed higher or lower, you’d need to provide evidence (like recent sale data) in order to succeed with an appeal.

To make an appeal, a review must be requested through BC Assessment. Once the review has been reviewed a hearing date will be set. You will receive a 30-minute window to share your evidence-based information.

Looking for your Property’s Current Market Value?

If you’re interested in having a current market analysis of your home, please contact me and I’ll gladly provide you with the referral of a professional who can help.



Our thanks to Paul Macara! You can reach Paul with all your home financing questions at (250) 857-4741 or This email address is being protected from spambots. You need JavaScript enabled to view it.



Top Victoria Real Estate Trends to Watch in 2018

Slower paced market, slower price rise

There’s been more than enough talk about the impending crash of Canadian real estate, but without some major outside economic shock, we aren’t expecting a catastrophic fall in 2018. What we will see is a reduction in volume to fewer than 100,000 unit sold province-wide, which will equate to a drop from 2017, but still above the ten-year average. Inventory constraints, higher mortgage qualifying requirements, rate volatility, and constrained economic growth are expected to drag prices lower nationally, but for Victoria we are still expecting modest single-digit price growth over the coming year.

Year of the Condo

Condo prices made huge gains in 2017. Because condos offer more accessible price points, and the appeal of a lower-maintenance lifestyle, we expect demand to remain high in 2018, with the resultant upward pressure on condo prices. Case in point: we had our last condo listing of 2017 under contract within a week, and it sold for over asking. Interested in capitalizing on the condo trend? Give us a call!

With a scarcity of developable land, and cranes dotting the downtown #YYJ skyline, it’s clear to see that developers are working to meet demand, and we are excited to see what some of the larger, master-planned communities such as Bayview and Dockside Green will have to offer residents as they continue to build out, reimagining the area west of the bridge with a new urban vibrancy.

Mortgage Rate Movement

With two rate hikes in 2017, the Bank of Canada finally began to shift away from the previous seven year cycle of historically low rates. This doesn’t necessarily mean that rates will make a straight shot up in the year ahead, as lenders typically cut their fixed rates to compete for business in the spring, and often push them up later in the year, closer to year-end. By and large, consumers should expect a little more rate volatility than has been the norm over the past few years.

Multi-family development taking centre stage

As alluded to above, the cost of financing and the cost of land are contributing to a reduction in the number of detached housing starts, as well, rising sale prices for attached homes and condo units have developers looking to multi-family property types to create new housing stock. With plenty of new townhouse and condo product coming up in Greater Victoria, watch for this trend to continue in 2018.

Return of the 30 year Mortgage

With the prospect of a one-two punch to consumers in the form of the higher stress test threshold and increasing rates, buyers will be seeking means to stay in the game. 30-year amortizations are still available to borrowers who have more than 20% down, and although the longer term incurs CMHC fees, it will likely be the difference in approval for many individuals, applying both to new mortgages and to those reaching the end of their terms and shopping for options at renewal.

Technology

Cutting-edge tech is nothing new in the real estate business, but as we here at YYJhome.ca position ourselves for this year and further into the future, we can see that the rise in mobility amongst our clientele - consumers’ need to have good information accessible anywhere as they navigate the property market - will dictate that we continue to provide faster, easier access to information on the go. Our interpretation, analysis, and contextualization of market data will be key to helping you maximize your opportunities. In addition, we anticipate leaning into our commitment to utilizing technology to showcase our property listings - particularly in the 3D virtual tour / VR space, a sector in the real estate industry we are expecting to see grow rapidly over the next decade.

2018 Victoria Real Estate Outlook

With the release of the last set of market stats from 2017, we’ve had a chance to look back at the highs and lows of the year that was for real estate in Victoria… The highs: the all-time record high average sale price of almost $860K (more than 14% over the previous year), and the lows: the record low level of listing inventory, with most months carrying a only around 1,500 listings (about 25% less than we were used to seeing a few years ago). It’s easy to see how these two conditions interact, with low inventory and continued demand for property driving up pricing.

Predictions for 2018

On a national scale, it is expected to be a year of moderating activity in the market. It will definitely be interesting to see how the new mortgage rules (which will have the effect of reducing the amount purchasers can qualify to borrow to buy a home), and gradually rising interest rates, will affect buyer mobility and therefore market activity. It is widely hoped that the changes, coupled with gradually rising interest rates, will help ease things somewhat, allowing a little more inventory to build up over the year ahead, and helping housing markets to return to a more balanced state.

In our local market I expect we will see somewhat of a continuation of the trends that have defined the market here for the past year - a market that is steady to hot, still favouring sellers, but the silver lining will be that persistent low inventory will be given a chance to build a bit with tightened borrowing regulations and rising interest rates, which will also give rise to gentler upward pressure on pricing resulting in more moderate price growth. I expect to see the overall volume of transactions down slightly from 2017.

Notwithstanding the major forces above which are expected to influence the market most strongly, buyers from the two largest and most expensive markets in Canada continue to show an interest in our city’s incomparable quality of life, (comparatively) affordable prices, and strong job market. Indeed, it is the influence of non-Victoria buyers that will be the unknown factor determining what the market will bear in terms of further price increases.

Stay tuned!


Dirk

2017Q4 Housing Forecast Released from BCREA

The BC Real Estate Association Housing Forecast is out today. It mirrors what I've been predicting, which is the expectation that in response to low inventory, gradually rising interest rates, and a decrease in borrowing power from new OSFI regulations, market volume is slowing. The number of sales in BC is expected to be down just under 9% for 2017, and another 10% for 2018, which should mean a more balanced market to work in, and while we aren't expecting to see home prices go down overall, the rapid rise in prices that we've seen in the past few years is predicted to level off to low single-digit increases. If this all comes to pass, I think it's good news for consumers and Realtors, giving everyone a little room to breathe.

The full forecast is available here.

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