Kathy Tomlinson is the reporter who wrote a recent article detailing the flipping of property in Vancouver which seems to have gotten some government attention.
There’s a comment from a Real Estate lawyer that points out this practice is not necessarily a driver of a hot market, but more a symptom of a hot market and it can go both ways:
First, without a clause disallowing it, any contract can be assigned. You can assign your cell phone contract to someone else. There’s nothing sneaky about this.
Second, the final purchase price is listed on the transfer document (Form A Transfer) and easily found through the Land Title registry. Just need the PID number, pay the search fee and it’s under s.2(b) of the transfer. Property transfer tax is paid on this amount since it’s a tax on the transfer. There’s no tax avoidance here.
Third, the seller. The seller signed off on the transfer agreeing to the sale price. If they thought they could sell for more, there’s no one forcing them to sell at the price they signed off on. I fail to see how the sellers in the article were taken advantage of.
Fourth, the middleman. Okay so a few things, if the middleman isn’t paying taxes on the lift (the difference between the original purchase price and the final sale price), then that’s tax evasion, and attracts criminal liabilities. And a stupid way of going about it too. Sure, it’s a private contract but if the CRA/police come inquiring there’s a massive paper trail.
Further, if the middleman signed the contract without having the intention to complete but just to flip, then they’re taking on the risk of not finding a final buyer. And if they don’t complete, then they’re liable to lose the deposit and get sued for damages if the seller can’t find a buyer at the same price.
I was around in 2008 during the housing crash when it went the other way, when buyers assigned their contract at a loss because their financing fell through when property values plummeted.
Garth is right basically, this is a symptom, not a driver of insane housing prices. Want to watch prices drop? Increase the interest rate. Have the rate go to 6-7%. I might have to go into foreclosure work.
Read the full AMA thread over at reddit for this and other viewpoints.
It’s interesting that this topic has blown up so much and spurred responses from government. There’s nothing inherently shady about purchasing something and reselling it for a higher price and if the government feels like getting some of their hands on this money all they have to do is tax each assignment transfer.