If One Word could Characterize 2016, It Would be Change
2016 Started off with an overheated market to put it nicely. This fevered market saw multiple offer situations that resulted in some head-spinning sale prices. In an effort to cool the market, hastily implemented regulations soon started to be announced from the City of Vancouver, The Province and finally by the Federal Government. These changes to the real estate market seem to have had the desired effect with market activity dropping considerably in recent months. The newest variable is the surprising result of yesterday's U.S. presidential election which may cause even more uncertainty in the months to come. Here is my attempt to clarify all of this information that is flooding your news feeds.
Surprising Election Results
Oh yes, I believe we have all had our fill of U.S. politics for this lifetime. The financial markets have welcomed President Elect Donald Trump with mixed feelings. It remains to be seen how the election results will effect the Metro Van real estate market. Factors that could impact the market could be the expected future of US-Canadian relations; Specifically, how our current trade deals will be affected over the coming months and consumer beliefs on the supposed influx of US citizens to Canada. Only time will tell how the market interprets Mr. Trump's entry into the oval office.
Changing Practices for Insured Mortgages
As of Oct 17, all insured mortgages will need to undergo a "stress test" which evaluates the applicant based on the Bank of Canada rate in addition to the contract rate. For example, a five-year fixed mortgage application at a lender rate of 2.39% would have been qualified at that rate. Now the applicant will need to qualify at the BoC rate (currently at 4.64%). The biggest effect is that high ratio (less than 20% down) applicants will qualify for less than before. New announcements are coming out all the time so the best thing to do would be to contact your mortgage specialist to find out the latest and greatest. Let me know if you don't have one already.
Additional PTT for Foreign Entities
In July, Christie Clarke announced that foreign entities would be charged an additional tax of 15% Property Transfer Tax on their real estate transaction. This new tax affected all residential transactions that completed after August 2, 2016 meaning deals that firmed-up prior to the announcement, but were not yet completed, would be subject to the tax. As a result, a number of deals collapsed as home buyers walked away from their deposits in order to avoid the additional tax. In addition, this resulted in speculation about the future of the Vancouver real estate market. Click here for more information.
City of Vancouver Vacant Home Tax
The city of Vancouver announced a vacant home tax in June targeting investment properties with a tax ranging from 0.5%-2%. The preferred method of collection was through BC Assessment.
"The City would work through the Assessment Roll to levy appropriate property taxes on empty and under-occupied investment properties, using data already collected on primary residence and rental income through the Homeowner Grant and income tax collection processes.
The 'residential vacant' classification would be administered annually and would likely involve a self-declaration and audit/complaint response process." - Source: http://vancouver.ca/news-calendar/vancouver-takes-next-steps-on-taxing-empty-homes.aspx
Recently, staff recommended a 1% empty home tax should be implemented on all non-principle residences that are unoccupied for 6 months of the year or more. This tax is scheduled to come into effect some time in 2017.
So Where is the Opportunity in All This?
The good news is that, for the moment, the real estate market has cooled and sale prices have stabilized and even dropped in some areas. For home buyers, this means that there are opportunities to once again negotiate on price. For home sellers, home prices are still high and activity is still strong for attached homes. We are entering into more balanced market conditions which means that everyone has an opportunity to get a fair deal done. Please stay positive and let me know if you have any questions!