Chinese Investors Driving Up Metro Housing Prices

[whatnext]

Originally Posted by jlousa

Guys Jebby is absolutely correct from an economic standpoint. You have two buyers today, one buys a completed unit and removes a units from the market place and pays no tax. You have a second buyer that bought a presale last week, they aren't removings a unit from the market place, they are creating a unit, yet the second buyer gets dinged with a 15% after the fact. How can anyone argue that makes sense? Sure if they bought after the tax is implemented it would be one thing but doing it retroactive is bad policy.

This is going to cause a reduction in future supply. And although it will make a slight dent in prices, it won't do much, if you can't afford anything today would you be able to afford if prices fall 10-15% or even 20% from the recent highs? What I expect to see is the reduced new supply create upward pressure on rents hurting the very people that need the most help. The proper solution was not to have kept interest rates so low for so long, but raising them would hurt too many voters so it wasn't done. Short shortsightedness.

I disagree that this will cause a reduction in future supply, unless that supply was only being built to satisfy foreign demand in the first place. If what was being built to satisfy offshore demand, then it is no surprise developers were pricing to take maximum advantage of what offshore buyers were willing to pay, and locals were getting burned as a result.

Yes, it is unfair that some people are getting burned by not completing until after August 2. Perhaps the gov't should have made an exception for those with a signed contract. However, given the complete lack of ethics shown by so many in the real estate industry lately, can you blame the bureaucracy for not trusting them with regards to who has signed as of the day the tax was announced?

Central banks certainly deserve blame for fueling the problem with their chicken little approach to interest rates. Rock bottom rates should be a tool of last resort, not permanent policy.

[Caliplanner1]

Originally Posted by whatnext

Central banks certainly deserve blame for fueling the problem with their chicken little approach to interest rates. Rock bottom rates should be a tool of last resort, not permanent policy.

.....low and high interest rates are used by all central banks to manage/stimulate industry demand/economic growth by controlling the supply of money. As long as Canada's resource based export economy remains weak (with the danger of rising unemployment) low interest rates will be in place to help keep the domestic (demand based consumptive) economy from collapsing.

[bb1510]

http://www.financialpost.com/m/wp/fp...all-pay-for-it

"The British Columbia government has suddenly introduced a penalty tax forcing non-Canadian purchasers of residential real estate in the Greater Vancouver Regional District to pay a 15 per cent tax on all purchases registered from Aug. 2, 2016. This penalty tax discriminates by definition against foreign investors buying residential real estate in the Greater Vancouver Area: Canadian citizens buying residential real estate are exempt; foreign buyers must pay the tax.

That discrimination is a glaring violation of our trade treaties. The North American Free Trade Agreement (NAFTA) and other Canadian trade agreements prohibit governments from imposing discriminatory policies that punish foreigners while exempting locals. NAFTA’s national treatment obligation requires that citizens from other NAFTA partners investing in B.C. receive the same treatment from the government as the very best treatment received by Canadian investors. Americans and Mexicans forced to pay the 15 per cent penalty tax would be able to pursue direct compensation for B.C.’s discriminatory tax from an independent international tribunal.

Canada has other treaties with similar protections for citizens and businesses with other trading partners. We have agreements with similar terms with: Argentina, Armenia, Barbados, Benin, Costa Rica, Cote d’Ivoire, Croatia, Czech Republic, Ecuador, Egypt, Hungary, Jordan. Kuwait, Latvia, Lebanon, Panama, Peru, Philippines, Poland, Romania, Serbia, Slovakia, Tanzania, Thailand Uruguay, Ukraine, and Venezuela. Investors from those states might also potentially challenge the B.C. tax. While the vast majority of Vancouver’s foreign property buyers might be Chinese, who were apparently the provincial government’s main target, enough investors from our dozens of treaty partners, comprising of hundreds of affected foreigners with trade rights, could be caught up in this tax, leading to mass claims. Those claims would be against the Canadian government, the signatory to NAFTA and the other international trade treaties, not B.C. Canadian taxpayers could be on the hook for hundreds of millions, or even billions, of dollars.

In addition, the anti-foreigner tax has the potential to lead to trade disputes, as the national treatment provision permits foreign governments to seek retaliation against Canada. For example, the recent Canada-China Bilateral Investment Treaty has the same national treatment protections that would allow the government of China to challenge B.C.’s tax. The U.S. government could also apply its trade muscle to demonstrate its resolve against anti-foreigner penalty taxes affecting American investors.

The foreign-buyer tax was announced in an arbitrary and unfair manner. The penalty does not exempt existing transactions legally concluded before the tax was announced. This arbitrary imposition disrupts predictable commercial relationships that may have been in place years in advance. It’s an unfair action that violates international legal norms of fairness, protected under treaties. All Canadians could well end up paying a heavy price for it.

Barry Appleton is managing partner at Appleton and Associates International Lawyers in Toronto and the author of two treatises on the North American Free Trade Agreement."

[whatnext]

Originally Posted by bb1510

http://www.financialpost.com/m/wp/fp...all-pay-for-it

"The British Columbia government has suddenly introduced a penalty tax forcing non-Canadian purchasers of residential real estate in the Greater Vancouver Regional District to pay a 15 per cent tax on all purchases registered from Aug. 2, 2016. This penalty tax discriminates by definition against foreign investors buying residential real estate in the Greater Vancouver Area: Canadian citizens buying residential real estate are exempt; foreign buyers must pay the tax.

That discrimination is a glaring violation of our trade treaties. The North American Free Trade Agreement (NAFTA) and other Canadian trade agreements prohibit governments from imposing discriminatory policies that punish foreigners while exempting locals. NAFTA’s national treatment obligation requires that citizens from other NAFTA partners investing in B.C. receive the same treatment from the government as the very best treatment received by Canadian investors. Americans and Mexicans forced to pay the 15 per cent penalty tax would be able to pursue direct compensation for B.C.’s discriminatory tax from an independent international tribunal.

Canada has other treaties with similar protections for citizens and businesses with other trading partners. We have agreements with similar terms with: Argentina, Armenia, Barbados, Benin, Costa Rica, Cote d’Ivoire, Croatia, Czech Republic, Ecuador, Egypt, Hungary, Jordan. Kuwait, Latvia, Lebanon, Panama, Peru, Philippines, Poland, Romania, Serbia, Slovakia, Tanzania, Thailand Uruguay, Ukraine, and Venezuela. Investors from those states might also potentially challenge the B.C. tax. While the vast majority of Vancouver’s foreign property buyers might be Chinese, who were apparently the provincial government’s main target, enough investors from our dozens of treaty partners, comprising of hundreds of affected foreigners with trade rights, could be caught up in this tax, leading to mass claims. Those claims would be against the Canadian government, the signatory to NAFTA and the other international trade treaties, not B.C. Canadian taxpayers could be on the hook for hundreds of millions, or even billions, of dollars.

In addition, the anti-foreigner tax has the potential to lead to trade disputes, as the national treatment provision permits foreign governments to seek retaliation against Canada. For example, the recent Canada-China Bilateral Investment Treaty has the same national treatment protections that would allow the government of China to challenge B.C.’s tax. The U.S. government could also apply its trade muscle to demonstrate its resolve against anti-foreigner penalty taxes affecting American investors.

The foreign-buyer tax was announced in an arbitrary and unfair manner. The penalty does not exempt existing transactions legally concluded before the tax was announced. This arbitrary imposition disrupts predictable commercial relationships that may have been in place years in advance. It’s an unfair action that violates international legal norms of fairness, protected under treaties. All Canadians could well end up paying a heavy price for it.

Barry Appleton is managing partner at Appleton and Associates International Lawyers in Toronto and the author of two treatises on the North American Free Trade Agreement."

And yet Florida has differential property tax rates for non-residents so there's obviously some loophole he is not aware of.

[csbvan]

A partner at a firm really shouldn't be posting such speculation, without analysis, as fact.

[WarrenC12]

Canadians can't even own property in Mexico. Clearly this guy started down this NAFTA path without even the most basic of research.

[Caliplanner1]

Originally Posted by WarrenC12

Canadians can't even own property in Mexico. Clearly this guy started down this NAFTA path without even the most basic of research.

I may be wrong but I think the Mexican rule is that foreigners can't own land within certain distances of the coast line. Nevertheless,...it is also a discriminatory rule that sets up a negative NAFTA precedence (in violation of "free trade" principles).

[Jebby]

Originally Posted by WarrenC12

Canadians can't even own property in Mexico. Clearly this guy started down this NAFTA path without even the most basic of research.

Originally Posted by Caliplanner1

I may be wrong but I think the Mexican rule is that foreigners can't own land within certain distances of the coast line. Nevertheless,...it is also a discriminatory rule that sets up a negative NAFTA precedence (in violation of "free trade" principles).

Foreigners can own property in Mexico, but if the property lies 100km from the border or 50km from the coast it must be held in trust by a bank.

It's a stupid, arbitrary, nativist rule and there is a lot of discussion and political will to change it.

[lio45]

Originally Posted by whatnext

And yet Florida has differential property tax rates for non-residents so there's obviously some loophole he is not aware of.

Not true, unless your point is that we don't qualify for homestead exemptions? (If so, nor do American property owners not meeting the requirements.)

[Bcasey25raptor]

This type of corruption is so patently obvious

"Foreign National Buyers get 15% off listing price!"

[lio45]

Originally Posted by Tfreder

Taken directly from the government news release:

I'm nearly sure all of the 15% tax avoidance deals will be easily defensible. You can't prevent someone from loaning money to a permanent resident relative, and you can't prevent that relative from buying property with it.

It'll never stand the test of the courts.

[csbvan]

Originally Posted by lio45

I'm nearly sure all of the 15% tax avoidance deals will be easily defensible. You can't prevent someone from loaning money to a permanent resident relative, and you can't prevent that relative from buying property with it.

It'll never stand the test of the courts.

So then you just have to trust that person...

[lio45]

Originally Posted by csbvan

So then you just have to trust that person...

I wouldn't think it's a good idea to doublecross a relative who can manage to smuggle millions in cash out of China... for many reasons, actually.

Plus, the loan can have terms that would protect the lender, say, at first sight, a quite high interest rate, but with interests cumulating and payable only at resale. That way, most of the profit from the flipping would justifiably go to the non-resident Chinese relative, but the CRA would have to admit the permanent resident also finds the deal to be to his/her advantage -- they're getting basically the only possible loan that allows them to buy and keep sitting on vacant property without having cashflows problems, though of course they have to pay dearly for that advantage (in a way that's eating up nearly all of their resale profit, but without the loan, there wouldn't have been any resale profit in the first place).

Fair for everybody, and no 15% tax.

[Cypherus]

Originally Posted by lio45

I'm nearly sure all of the 15% tax avoidance deals will be easily defensible. You can't prevent someone from loaning money to a permanent resident relative, and you can't prevent that relative from buying property with it.

It'll never stand the test of the courts.

You do know that if the Canadian resident acting on behalf of a foreigner would be engaging in an anti-avoidance transaction since they are not the beneficial owner of the property. The same as a bare trust situation which holds bare legal title to real estate but is not the beneficial owner. The BC government has already closed such loopholes.

If a non-resident does hire a Canadian resident to buy property in their name, and defended by the Canadian resident as attesting to be the legal owner, they they would have to pay capital gains tax if the property is not there principal residence. Capital gains tax is 50% income inclusion, subject to marginal tax rates up to 43.50% in BC. CRA enforces it. Good luck trying to ask the foreigner for more money to pay that tax...

[lio45]

Originally Posted by Cypherus

You do know that if the Canadian resident acting on behalf of a foreigner would be engaging in an anti-avoidance transaction since they are not the beneficial owner of the property. The same as a bare trust situation which holds bare legal title to real estate but is not the beneficial owner. The BC government has already closed such loopholes.

If a non-resident does hire a Canadian resident to buy property in their name, and defended by the Canadian resident as attesting to be the legal owner, they they would have to pay capital gains tax if the property is not there principal residence. Capital gains tax is 50% income inclusion, subject to marginal tax rates up to 43.50% in BC. CRA enforces it. Good luck trying to ask the foreigner for more money to pay that tax...

I don't know about BC but in Quebec you can earn your first $800,000 free of any capital gains tax (and the govt is looking at raising that bar to $1M). Since part of that exemption comes from the federal government, it's got to apply to BC (haven't checked, but I would assume so). Which means that it would only be a problem if you're using the same relative several times. I would assume the guy with the money will make it worth the relative's while, in any case...

Also, alternatively, you can very well have your student relative living in the property (as a resident owner). Works even better.

On a typical $3M Vancouver house, we're talking about pissing away $450,000 for no good reason unless you use a loophole; believe me, it's a very strong incentive.

We'll have to wait and see, but I'd be extremely surprised if this tax worked as intended.

[lio45]

P.S. How do you figure they're not the beneficial owner? They are.

Just 'cause they got a loan of a few million bucks from a Chinese relative doesn't mean they're not the owner of what they buy with it.

Who's the beneficial owner of your house, you, or your bank?

Originally Posted by Cypherus

You do know that if the Canadian resident acting on behalf of a foreigner would be engaging in an anti-avoidance transaction since they are not the beneficial owner of the property. The same as a bare trust situation which holds bare legal title to real estate but is not the beneficial owner. The BC government has already closed such loopholes.

[lio45]

BTW, I have absolutely no personal incentive to research loopholes in this law, which is why I can only speak in generalities, but I'm sure that to save half a million bucks these loopholes will be found, refined, and used successfully by nearly every foreign buyer.

Anyway, my Canadian corporation (owned by Canadians) would be glad to borrow money at advantageous terms for all parties from Chinese nationals who have a few millions in cash to spare, if there are any reading this. I'm sure we'd find ways to make it work perfectly legally to everyone's interest.

And FYI, upon resale, it would just be general business revenue, not a personal capital gain, so taxed at business rates.

[retro_orange]

You may have just reported yourself. It's more then likely at least one Canadian government employee reads this thread. Just an FYI, i copied all that too.

[Prometheus]

Originally Posted by whatnext

I disagree that this will cause a reduction in future supply, unless that supply was only being built to satisfy foreign demand in the first place.

Isn't that exactly what you believe? And if you believe that foreign demand was not for owner-occupied units but rather income-producing investor units (which are ultimately rental units for locals), and the tax is effective in causing a substantial number of foreign investors to back out of current pre-sale/pre-construction contracts (i.e., killing some current projects) and/or refraining from entering into future pre-sale contracts (i.e., vitiating or weakening the economic basis of future projects), then according to your own beliefs, there should be a reduction in the future supply of rental units, which would put upward pressure on local rents.

[Caliplanner1]

Originally Posted by Prometheus

then according to your own beliefs, there should be a reduction in the future supply of rental units, which would put upward pressure on local rents.

....only if there is a greater corresponding increase in effective demand. In other words, if effective supply remain high (with a glut of unsold units) but EFFECTIVE demand stays relatively low/flat (given low wages) then housing accommodation prices will dip.