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As we know, there is already currently a property transfer tax amendment surcharge on the purchase of residential real estate. It is 1% on the first $200,000 and 2% on any balance above that until the price hits $2 million, in which case the surcharge increases to 3%.
The introduction of this additional 15% tax surcharge for the purchase of property, however, applies only to non-residents. In the luxury arena - where most of these people are active - this represents only about a 5% component of all transactions. Of course, if you go into the mid-range market, it represents an almost negligible figure of the overall transaction. Remember - this only applies to the residential purchases; it does not apply to commercial transactions or agricultural land. The implementation is also only enforced in the greater Vancouver area, where the majority of market activity occurs.
"Markets have a funny way of becoming the stories people tell about them"
As an example, if a foreign buyer purchases a $2 million property that closes before August 2nd, their current transfer tax payable would be $38,000. This, of course, translates as a total purchase cost of $2,038,000. If that same $2 million transaction closes after August 2nd, the buyer would incur the installation of the 15% transfer tax. In this case, that 15% amounts to $300,000. So, in addition to the $38,000, the total transaction cost amounts to $2,338,000.
Our question becomes, then, how does this translate to the greater market? Consider this - with only 5% of the buyers impacted by this new tax, it shouldn’t make too much of a difference, right? Possibly, but markets have a funny way of becoming the stories people tell about them, so even on a sentimental basis we can see how some buyers may refrain from buying until this news filters through the market. They may wait by the sidelines and hope the prices start tilting their way. At the same time, we might see sellers panic and react by dropping their prices in the hopes of snagging a buyer.
Overall, it’s clear that this tax news will favor buyers over sellers. If you have any more questions about this, shoot me an email or give me a call at (604)-541-4888. Thanks for your time.
