
Foreign residential property buyers to be taxed at 15% in Vancouver - dotch
http://www.economist.com/news/finance-and-economics/21703381-taxing-problem-foreign-buyers-home-bias?fsrc=scn/fb/te/pe/ed/homebias
======
jpollock
The last paragraph indicates the precise problem with this policy - it isn't
adhering to the terms of the free trade agreements that Canada has signed -
both NAFTA and the "China Foreign Investment Promotion and Protection
Agreement" require that offshore investors be treated the same as onshore.

The CFIPPA [1] is clear on the subject:

1\. Each Contracting Party shall accord to investors of the other Contracting
Party treatment no less favourable than that it accords, in like
circumstances, to its own investors with respect to the expansion, management,
conduct, operation and sale or other disposition of investments in its
territory.

Perhaps the claim is that the initial purchase of the asset is what's being
taxed, which might be seen as exempt?

[1] [http://www.international.gc.ca/trade-agreements-accords-
comm...](http://www.international.gc.ca/trade-agreements-accords-
commerciaux/agr-acc/fipa-apie/china-text-chine.aspx?lang=eng)

~~~
pesfandiar
I don't know much about the legal aspects of international agreements like
that, but is real estate considered an investment vehicle like e.g. bonds and
stocks? You'd think there should be some exceptions, since real estate is
enabling local communities, and you know, provides shelter for people to live
in.

~~~
skylan_q
Vancouver is tight and they aren't building/aren't allowing more building in
the immediate area. Housing is for people to live in, but far too many have
been speculating.

~~~
EnFinlay
There is a lot of building happening in Vancouver right now, mainly housing
blocks being turned into high rises.

------
nathanvanfleet
I live in Canada and basically Vancouver, possibly the Canadian city with the
nicest weather, is completely cut off to me. It's not even like Silicon Valley
etc where there is an industry and you can find a job that pays better here,
it's just completely too expensive.

There was a website called something like "crack house or million dollar
Vancouver home" because knock-down quality bungalows were selling for over a
million dollars there.

~~~
deanCommie
You could rent. Rental prices in Vancouver are fairly reasonable relative to
purchase prices.

~~~
feklar
0.8% vacancy rate, good luck renting also landlords all use fix term year
leases now where you agree to move after it expires in order to bypass the
provincial rent increase cap and raise your rent +30%
[https://www.biv.com/article/2016/6/tight-rental-market-bc-
la...](https://www.biv.com/article/2016/6/tight-rental-market-bc-landlords-
dodge-rent-laws-f/)

~~~
goatforce5
FWIW, pre-agreed termination agreements like this are void in Ontario. I
suppose it's to avoid exactly the situation you describe.

[http://www.ontariotenants.ca/law/act05.phtml](http://www.ontariotenants.ca/law/act05.phtml)

~~~
hackerboos
Ontario's rental laws are great compared to other provinces with the exception
of maybe Quebec.

Once you sign a lease you and roll on month-to-month it's unlikely you will be
evicted. Landlords either need to sell the property or move into it themselves
to get the property back.

------
randomgyatwork
I like how this article frames it as an issue about the 'free movement of
capital.'

In a lot of instances 'free-trade' agreements exist to help the mega-rich,
this seems like a perfect example.

~~~
ab5tract
Critical analysis of neoliberal economics is not likely to be found in the
pages of one of its primary mouthpieces, though sometimes the Economist does
surprise and actually mentions an externality or two.

~~~
inopinatus
I think this is an unfair generalisation. The Economist has always had free-
market leanings, long before the term "neo-liberal" was spawned. Moreover even
a cursory glance at their comments feeds (you'll need a strong stomach of
course) reveals an equal quantity of complaining about this "leftist organ"
and its "socialist liberal agenda" as there is about being a "trade agreement
apologist" or "capitalist rag".

It may be the only way to gauge impartiality is when everyone is equally
offended.

------
velodrome
The Canadian housing market is currently in a bubble. The same can be said
about the Australian housing market.

Canada

[http://i.huffpost.com/gen/1100960/thumbs/o-BMO-HOUSE-
PRICES-...](http://i.huffpost.com/gen/1100960/thumbs/o-BMO-HOUSE-PRICES-
CHART-570.jpg?4)

[http://static5.businessinsider.com/image/54aea0136da8118f2ae...](http://static5.businessinsider.com/image/54aea0136da8118f2ae2093d-986-726/screen%20shot%202015-01-08%20at%2010.14.22%20am.png)

Australia

[https://1.bp.blogspot.com/-NuIUphAP17w/Vth6P3w2FzI/AAAAAAAAC...](https://1.bp.blogspot.com/-NuIUphAP17w/Vth6P3w2FzI/AAAAAAAACA8/XD2HC6aV-
Qk/s1600/Australia%2BHouse%2BPrice%2BIndex%2Bvs%2BInflation.jpg)

[http://www.propertyobserver.com.au/images/stories/keenjan2.p...](http://www.propertyobserver.com.au/images/stories/keenjan2.png)

~~~
hellogoodbyeeee
A bubble is a more complex phenomenon than large price increases. A bubble is
inflated by speculation that isn't rooted in anything except the rising price.

If rich foreigners are buying property to summer in because they like the
weather, then not a bubble. If rich foreigners are buying property because the
property has gained X% in price every year for the last ten years but they
don't know anything about the specifics of the local real estate market, then
more likely a bubble.

You also can't say something is a bubble until after it pops.

~~~
skylan_q
_A bubble is inflated by speculation that isn 't rooted in anything except the
rising price._

It's been like that for the last 8+ years.

~~~
hellogoodbyeeee
You are trivializing how difficult it is to determine this. For example, is
the empty mansion empty because someone is speculating with it or because a
globe trotting billionaire forgot he bought it?

I'm sure there is speculation going on in the market, but we can't tell to
what degree without polling the people buying real estate.

------
skylan_q
This tax won't do much to impact the market directly as foreign capital makes
up about 4-8% of the purchase activity, which is elevated but not outrageous.
Foreign funds also buy at the same average price as local funds so it's not
about rich buying mansions.

The larger impact will be on locals thinking "this is the end of chinese
money, so the market will tank!", which will scare them away from the market.

~~~
kamilszybalski
Agreed. There's also the fact that foreign investment, or foreign real estate
purchases, use proxies, which don't fall under this new tax. Too little, too
late.

------
caffodian
Vancouver is currently a mess of low interest rates, FOMO, foreign buyers, and
supply issues. Due to both the city & BC government having a large number of
developer donors, it's also a very partisan issue.

For the longest time, the ruling provincial party was of the opinion that this
was not a problem and high property prices was due to the strong economy
(circular logic, as real estate & construction are the drivers of that.) They
were getting pretty hammered in polls. On top of that, they cited a ~5% ish
foreign purchaser number based on 19 days of data, only to then bump it to 10%
conveniently on the release of new data a day or two after introducing this
15% tax...so yea. It's a disaster.

------
Tiktaalik
I'm generally in favour of this policy, though it's a bit half baked, and it
is too little, too late. It was probably only implemented because the
government had done nothing on the file, is coming into an election, and
realized they were going to get thrown out by an angry electorate.

In a lot of ways Vancouver has been ruined by the housing bubble and influx of
speculative foreign capital. Extremely high house prices have created a strong
incentive for anyone who can easily work elsewhere (ie. a tech worker) to move
away. Many of my friends have drifted away to Seattle and SF.

The only way houses could become even slightly affordable at this point would
be a housing crash. This would be disastrous to the local economy, which has
become entirely built on selling housing to one another. Accordingly it's hard
to wish for that.

------
goatherders
There is nowhere for people to live that is affordable and it's hurting the
economy (particularly tech). Young people are commuting up to 2 hours each way
to work while tons of condos sit vacant as foreigners park their cash in the
market. Even those wanting to buy with traditional financing are losing out to
all-cash buyers above asking.

~~~
MichaelBurge
Why don't they hire a property management company to rent it out? Whatever's
preventing that sounds like the real problem here.

~~~
doc_holliday
Well because the property is extremely overpriced when you consider market
rate rents the yields are extremely low. You can only charge as much rent as
the market will bear, which in some ways makes rental completely different to
ownership prices.

Basically the people buying it don't deam the return on renting it worth the
risk of a bad tenant or worth the hassle.

They don't need cashflow, are either using it as a safe holding of value or as
a quick escape property if they need to leave _insert country here_ for
political reasons.

It's happening the world over.

~~~
lintiness
sounds like you guys should dump as many of these properties on these fool
heads as possible. you can buy them back in a few years for a lot less.

~~~
saosebastiao
Exactly what came to my mind. I saw this same behavior happening in 2005. When
there is no marketable cash-flow producing use of investment property, you are
in a bubble.

~~~
kennywinker
And the phenomenon is even worse now. If you sold a property in 2005 in
Vancouver, I bet you wish you'd held on to it.

As someone else said, it's only a bubble when it pops. Good luck timing that.

------
skizm
LLC with one Canadian involved gets around this I believe.

~~~
tantalor
AKA tax evasion

~~~
CalRobert
More avoidance than evasion, really. It's not _against_ the law, even if it's
not liked.

------
overcast
Wonder if San Francisco could do the same to these foreign real estate
squatters.

~~~
feklar
The tax only really affects landed immigrants who live and work in BC, and
foreign capital investments in new developments as the Chinese speculators
with billions who want to park money in Vancouver have already found ways
around it because they can deposit millions to set up national corporations
and have it do all the land holding/flipping. For example my sister who has
lived here 30yrs with American citizenship will have to move to another
province or back to the US if she sells her house since she will be eligible
for the 15% tax buying a new place, on top of all the other existing taxes so
is looking at +20% tax when her family outgrows their home.

~~~
PakG1
My brother is a real estate agent in Vancouver. He is really upset at this law
because precisely this. He predicted before the law passed that the ones who
will suffer most from this tax will surely be honest immigrants. He says that
the law doesn't close the right holes to protect the right people, and it
certainly doesn't deal with the supply-side issues, only the demand-side.

------
inanutshellus
FWIW, this is a repost from 7 days ago:
[https://news.ycombinator.com/item?id=12212981](https://news.ycombinator.com/item?id=12212981)

------
sergers
A move by local government to drum up votes for upcoming election.

Make it look like we doing something, at the same time raising additional
budget with the tax surplus.

I think it's too little very late.

15%tax on illicit funds is just cost of doing business ( with says around it
too).

Quote from a localasian realtor to me: "now my client can't buy the 9million
dollar house he wanted for investment cause of tax." in one scenario

~~~
kennywinker
Damn right it looks that way!

My uncle, a Vancouver real estate agent, was talking about how the market had
all but halted it's growth just a few months before this change was announced.

I'm not informed enough to know for sure, but I'd guess this is the provincial
government trying to take credit for that slowdown after the fact.

------
atemerev
If foreign investors are happily buying "overpriced" properties at huge
premiums, why not simply build more?

~~~
raquo
Because you'll never build enough. Global demand surpasses potential local
supply by a huge margin. Prices won't even begin to drop.

~~~
atemerev
Vancouver is Canada, with lots of undeveloped spaces available. It is not
Manhattan or Hong Kong (not that Manhattan is some sacred land too that
everybody should live there). It can be safely increased in size many times.

But some might say this will drive property prices down? Mission accomplished!

~~~
raquo
That's ridiculous, a city growing in size or density will never see decreased
property prices. This will actually increase the prices because the city is
now a more "desirable" place to be (for some).

Foreign money is a real problem, there is no way around it. If you want your
city's housing market to be a wide open safe haven for everyone in the world
to park their money in, you're going to push out the locals because these
investors' demand for housing does not increase locals' incomes, it only
increases housing prices.

In Canada this problem is especially bad because of immigration loopholes for
the rich. For vast majority of Vancouver properties it actually costs less to
buy permanent residency via Quebec's immigrant investor program (~$100K in
interest payments, no other requirements) than to pay this stupid 15% tax.
Just let that sink in for a minute.

~~~
atemerev
And what is the problem with this? The local benefits in property taxes will
be enormous.

I live in Geneva, Switzerland. We are welcoming rich immigrants.

~~~
raquo
$3000 CAD per year per condo/house is very small consolation given all the
negatives.

For example, just one of the many problems – a foreigner buys residency ($100K
paid to Quebec, not BC), buys a house here, then continues to run his business
in China, while their family moves into the house full time. Then their family
uses up social services like universal healthcare, public schools and
universities, while collecting low-income tax rebates because the breadwinner
is not a Canadian tax resident, and does not need to declare their global
income.

That's not some thought exercise, it's a very common occurrence here. So the
rest of Canadians end up paying taxes to finance all this, and get inflated
housing costs as a bonus. I don't see how that's a good outcome.

I've no idea how things work in Switzerland, but they don't work in Canada
with our current laws.

------
adaml_623
What's the reason for this?

Is it because it's bad for real estate in a living city to be used as an
investment vehicle?

~~~
bluedino
It's free money, and it looks really good as protecting local interests. A
Chinese or Russian millionaire looking to buy property in Vancouver is going
to buy whether it's $5 million or $5.75 million

~~~
newacct23
>A Chinese or Russian millionaire looking to buy property in Vancouver is
going to buy whether it's $5 million or $5.75 million

I don't know why you believe this to be true but it isnt

------
mywittyname
The province could pass a law that allowing them to seize the assets of a
foreign owner who does not occupy or rent their residence. Have this law apply
to companies that hold single-family residence as well.

If it passes legal muster, the threat of losing your property is probably
enough to dissuade a lot of foreign investors.

~~~
Thriptic
Wouldn't that also harm anyone with a vacation property?

~~~
mywittyname
It would harm a lot of people. But the problem they are trying to solve is
foreign investment driving up property prices. The best way to attack his
problem is to prevent or discourage foreign investors from buying residential
homes.

The good thing is this kind of law can be adjudicated, unlike the tax. Because
you can go before a judge/mediator and argue that you use the home as a
residence.

The current tax scheme just hurts foreigners that live and work in Canada, not
the people who buy up million dollar properties (which is exactly who the law
intends to target).

------
astazangasta
I have been upset by how quickly many people have concluded that the problem
in San Francisco (et al) is something something supply/demand and not about
speculation, and that the solution is to open up zoning laws and allow new
development.

The existence of enormous wealth inequality means a few billionaires can
easily scoop up all the available property on the market in San Francisco, and
thus the housing price is extremely vulnerable to speculation. Since land is
the most valuable thing you can own, and thus the most lucrative thing to
speculate on, I am sure this is happening.

Here
[http://voxeu.org/sites/default/files/schularick_fig1.png](http://voxeu.org/sites/default/files/schularick_fig1.png)
is a figure from a recent paper showing a dramatic rise in the price of
housing since 2000. The authors of this paper again conclude that something
about movement or building or zoning needs to change.

I disagree. To me it is obvious that this shift after 2000 is the result of
speculation. Specifically, we know that the Commodity Futures Modernization
Act of 2000 opened up a vast new derivatives market in the hundreds of
trillions of dollars. This market contributed to a series of enormous bubbles
and speculative bursts - e.g. the energy market speculation that Enron caused,
and later the housing bubble that destroyed the global economy, still ongoing.

It seems obvious to me that the sudden and dramatic rise in land price is at
least partially, and probably mostly, related mostly to derivatives and
speculation. We didn't change much since 2008 - it stands to reason this would
still be ongoing.

It is also my belief that the recent push to "build build build" and "rezone"
in SF is a result of this speculative putsch, which wants new and valuable
property in SF to make good on the bubble of speculation.

Since this bubble is driven by billionaires in tight markets (not poor people
being given fraudulent mortgages nationwide), it's probably harder to see and
pop. But I really, really wish people were paying attention to this more. We
haven't learned the lesson of 2008 - things have changed, and not for the
better.

