Limits to foreign ownership

Someone over at the Vancouver Courier is of the opinion that foreign buyers have driven up the cost of real estate in Vancouver.

Of course, capitalism requires competition, and free market principles should drive our housing market. But we no longer control that market. And despite growing evidence of market dysfunction, Premier Christy Clark, who could stiffen provincial regulation, and Mayor Gregor Robertson, who could increase taxes on foreign property owners, cede our land to foreign buyers.

Not so in Australia.

In recent years, Australian cities have experienced Vancouver-style real estate booms, with housing prices soaring from Sydney to Melbourne. Like here, buyers from China help drive Australia’s speculative real estate market. Faced with mounting public pressure, in 2010 the Kevin Rudd government introduced strict regulation aimed at foreign ownership. Under the new rules, the Foreign Investment Review Board (FIRB) screens foreigners (including temporary residents and students) to determine their land purchase eligibility. Foreigners can’t buy existing properties and must build on vacant land within two years of purchase or face government-ordered sale. Scofflaws face capital gains confiscation. Finally, before foreign homeowners leave Australia, they must sell. No more overseas landlords Down Under.

Full article here. Is it time for BC to start looking at regulating home ownership and foreign buying?

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Anonymous
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Anonymous

What really should happen is that foreign owners' tax rates should be much much higher than locals. I think this will eventually be coming everywere as its very good politically – its a vote getter from locals and those who will have to pay the higher tax (foreigners) can't vote.

Londonernow
Member
Londonernow

Sorry, that was my comment above. I forgot to sign in before posting.

jesse
Member
@Anonymous: BC is a big enough province that I see it unlikely that a province-wide solution will be popular. First there isn't much evidence, albeit limited to anecdotal, that foreign ownership is a problem outside a few select areas. Parts of the Okanagan would kill for some foreign $ injections right now. Second if foreign capital turns out to be as fleeting as in past bubbles there will be big pressure to attract direct investment once again if prices weaken. There are too many people sucking at the real estate teat to keep curbs in place under severely bearish market conditions. In my view it's unlikely BC will issue a collective mea culpa regarding its addiction to property speculation, instead like any good addict doing anything and everything to get high again. A prolonged housing recession would humble a few… Read more »
patriotz
Member

"and Mayor Gregor Robertson, who could increase taxes on foreign property owners"

No he can't. Only the provincial government can. And it won't, because it's joined at the hip to the RE "industry", as Crusty herself effectively pointed out in a letter she wrote to one of our posters.

As for Oz, their token measures against foreign ownership are just a smokescreen against the real causes of the RE bubble there (and everywhere else), namely loose credit and speculation.

Here's a thought experiment for you: suppose the BC government brought in a 100% tax on RE capital gains, effective for any property sold after July 1, 2012. Owner-occupiers could be exempted. What would happen?

patriotz
Member

Canada’s cities score poorly on economic rankings

The point: even among its direct peers, Canada fails to standout.

Calgary and Edmonton are benefiting from the commodities boom, but Houston and Dallas are doing better. Canada’s manufacturing core of Hamilton, Toronto and Montreal have nothing on German cities, and they even trail the likes of Rochester, Milwaukee, Wisconsin; and Buffalo, New York.

But we have a massive housing bubble, while Germany and Texas never did and the rest of the US no longer does. So much for the real economy.

CanuckDownUnder
Member
CanuckDownUnder

These "new rules" were just going back to how things were up until 2008, and there's no data on how many foreigners actually purchased in the 15 month period when the relaxed rules were in place.

Funny that there's no mention of the fact that Australian cities starting booming in the late 1990s, long before Rudd & Co supposedly opened the door to the yellow hordes.

And the surging prices in 2009-10 certainly had nothing to do with the fact that the RBA had slashed the cash rate from 7.25% in Sep 2008 to 3.00% in Apr 2009 while at the same time state and federal governments were handing out all sorts of homeowner grants.

crabman
Guest

If wealthy Asians were driving up prices in Canada or Australia, then why have both countries seen a massive rise in debt?

Aussies are, like Canadians, at around 150% debt to disposable income.

frank
Guest
frank

Local buyers of all races and hues CANNOT compete with un-taxed, hot, maybe even stolen money coming out of Mainland Chinese.

The result is the locals provide all the services while these these parachute buyers own the city. Those that do buy have to go so far into debt to compete that their futures are put at risk just to own.

Of course there are winners. The sellers are hitting a bonanza. Huge tax-free profits from selling to the mainland Chinese. The sellers are often Baby-boomers like me.

They get to take a huge wad of cash away without paying tax on it, but are getting ready to use healthcare and pensions in a big way. Who pays for this? The same younger renters, salary earners who are getting hit twice.

the system is not working!

chubster
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chubster

any article on high prices that does not at least mention boc/cmhc complicity misses the mark entirely. foreign owners are a convenient, visible target for all sorts of abuse – tax grabs included. but ask a simple question – why should outside sources putting money into the local community be a negative? in fact, why not blame those who sold to foreigners? that would make about as much sense.

frank
Guest
frank

@chubster:

You are right that the CHMC and banks have been enablers of this lunacy.

However when a resource is limited it must be protected for the locals (locals of all races- this is not a race issue)

We wouldn't just let anyone come and buy up our oil resources or our farmland, why is residential real estate any different?

Isn't the Government trying to encourage home ownership with the crazy antics of the CMHC?? Well by allowing someone with a wad of untaxed dough from a company they looted in Beijing to compete with that buyer- they are cutting the local buyer out.

The result is either the local buyer gives up or borrows even more to try and compete and in many case this risk is transferred via the CMHC to us all. Crazy!

jumpin in
Guest
jumpin in

frank, I agree with your posts, except one point:

"We wouldn’t just let anyone come and buy up our oil resources or our farmland, why is residential real estate any different?"

We actually do, in Alberta (tar sands) and Quebec (farmland). More and more sold to foreign investors. See:
http://thinkprogress.org/green/2011/12/03/378752/

patriotz
Member

@frank:

"We wouldn’t just let anyone come and buy up our oil resources or our farmland, why is residential real estate any different?"

Residential RE doesn't produce tradable goods or services, only a local service at a terrible yield to current prices. I'm a lot more concerned about foreign ownership of productive resources which contrary to what you think there are few restrictions on.

As other posters have said foreign purchases of RE are actually an input to the economy, the damage comes when locals buy at inflated prices (whether actually caused by foreign ownership or not) with government assistance.

That said I think we ought to tax foreign owners of RE much more than locals simply because we can and they don't vote. But I don't think foreign ownership is really the problem.

Tony
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Tony

Frank is right.

Runawayscreaming
Guest
Runawayscreaming

"We wouldn’t just let anyone come and buy up our oil resources or our farmland, why is residential real estate any different?"

Um, actually we already let anyone buy up our oil resources. Canada's oil resources are almost all foreign owned. The government of China (Sinopec), for instance, is one of the foreign owners of the tarsands.

The government of Alberta has aligned itself with China to pipeline tarsand oil through British Columbia. There is nothing that foreign oil companies would enjoy more than the wholesale purchase of British Columbia by corrupt Chinese Communist Party cadres. That will put a stop to pipeline protestors.

Good luck getting the tarsand off your gumboots when you go for a stroll at Kits Beach.

patriotz
Member

@Runawayscreaming:

One of the reasons why there is so much foreign capital going into buying our resources is the lack of domestic household savings due to the housing bubble. People are relying on selling their houses to fund their retirement rather than buying Canadian resource companies.

There is just so much damage from this idiocy and it's going to last a long time.

N
Guest
N

It is not actual buying by foreigners, but rather the perception that there is buying by foreigners, that drives up prices. Unfortunately, hysteria and stupidity cannot be legislated away.

observer
Guest
observer

nope – will not work. municipal regulations would have no effect as buyers merely would move to other regions in Metro Van. munis also do not have this taxation power

Makaya
Member
Makaya
@Runawayscreaming: Talking about tar sands and the planned pipeline through British Columbia, if you disagree with it, you can sign the petition against it here: http://dogwoodinitiative.org/no-tankers/petition I've lived in an area hit 3 times by sinking tankers and I can tell you, it really sucks (the smell, the toxicity, the devastation of large chunk of coast line, etc…). Alaska knows too what an oil spill from a sinking tanker feels like. If it happened there, it will happen in BC as well. By building this pipeline, we'd be taking huge risks with very little economic benefits for BC… Coming back to real estate, I agree that Vancouver has suffered like any other major Canadian city, from CMHC policies and the absurd amount of debt people have been willing to take on (and banks were willing to give). But Vancouver has… Read more »
VHB
Member
VHB

On the public MLS, VW SFH just jumped from 602 to 650 in one day. That is insane, yes?

taylor192
Member

@patriotz

In addition to 100% capital gains tax on non-principal residences, they should add Germany-style clauses that you must live at a residence X years before it qualifies as your principal residence. This would squash the flippers, and make people think twice about long term purchases.

registered
Member
registered
11 chubster Says: "but ask a simple question – why should outside sources putting money into the local community be a negative?" The Colombian cartels are reportedly moving into the area. Happy? Are sellers to blame for that too? Consistency counts. Maybe you can expand on how a home seller knows how the buyer earned the payment. Highly rich, highly productive and highly motivated immigration still presents a challenge but it would be pure idiocy to shut them out. What they bring to the country ultimately benefits everyone. That's not the concern. It's the possibility people are moving to Canada to park their wealth and go into semi-retirement. It throws a monkey wrench into our from-many/to-many social welfare system. Higher taxes, reduced services and massive dislocation to families for people who never have, and in any significant sense likely never… Read more »
Makaya
Member
Makaya

@N: Well, without hard data, it's impossible to prove whether you're right or wrong. However, there is sufficient anecdotal evidence to prove that off-shore buyers have indeed played an active role in our local real estate market, particularly in Van West and Richmond. I don't think the stupid bidding wars we saw last year in Richmond were entirely driven by locals…

registered
Member
registered

12 frank Says: "Isn’t the Government trying to encourage home ownership with the crazy antics of the CMHC??"

No, and it's finally starting to surface in their releases, they're trying to encourage expansion of the GDP by stimulating real estate and related industries. That it's the party of business pedal to the floor on this economic dead end road is just one of history's little jokes.

VHB
Member
VHB

Here is a graph of VW SFH inventory I put in the forum.

I don't even know how to extrapolate that trend. Stuff is vertical.

At 650 now. Serious possibility of hitting 1000 in close future. Last time that happened was October 2008.

jesse
Member

@patriotz: "foreign purchases of RE are actually an input to the economy, the damage comes when locals buy at inflated prices"

I know foreign investment is evil but I'm starting to think Canadians should take the money. It's not going to be there for much longer… 😐

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