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Realtor’s Requests to Political Parties

BC Housing Sector Urges Federal Parties to Act on
Affordability Recommendations

Too many British Columbians struggle to find an affordable home to rent or own because of a lack of housing options. Nearly six in ten uncommitted Canadian voters cite access to affordable housing as a top election issue, according to an August 2019
Angus Reid survey.

The next federal government has the opportunity to improve affordability by reducing taxes on new rental homes, encouraging housing supply to match transit targets and changing mortgage underwriting rules.

Six organizations representing the BC housing sector have partnered to make housing affordability recommendations that focus on much-needed solutions. In advance of the first debate, we urge each of the parties to adopt the following three recommendations to help address the housing and affordability challenges in British Columbia and the rest of Canada.

  1. Remove GST as a major barrier to new rental housing

    British Columbia has a rental housing shortage. Metro Vancouver’s overall rental vacancy rate has hovered around one per cent or lower for the last five years. CMHC estimates the region has had a net loss of 6,000 purpose-built rental units since 1991. At the same time Metro Vancouver’s population has grown by over one million people
    and is forecast to grow by an additional million in the next 20 years. This scarcity of rental housing has resulted in increased rental prices and stress for renters, a situation that will continue unless decisive action is taken.

    A barrier to addressing the lack of new rental options is the punitive application of the five per cent GST on new purpose-built rental buildings. Under GST rules, a builder pays GST on the “self-supply” of a purpose-built rental building when construction is completed. This means that when rental developers intend to keep, manage and operate new purpose-built rental homes, GST rules require that they pay GST on the market value of the building and property at completion as if they’ve sold it. This is essentially a sales tax on an artificial transaction that adds millions of dollars to the cost of new rental buildings, even for non-profit home builders. A recent analysis of a 117-unit project in Vancouver showed how removing the GST could reduce monthly rents between 3.04 and 6.06 per cent. This additional tax negatively impacts renters, because rental providers must recover the costs through increased rents.

    Removing the GST would make purpose-built rental projects more financially viable and could provide lower rental rates for affordable housing projects.

    We recommend:

    • fully rebating or exempting the application of GST on new rental housing.

  2. Link federal transit investments with federal housing targets

    The federal government can encourage effective land use and transportation decisions by linking the need for more housing options with the significant federal transit funding that is planned. Setting new land use guidelines with housing targets for transit investments would unlock additional home options by supporting regional and local transportation plans.

    We recommend:
    • leveraging contributions to local rapid transit projects by requiring housing targets,

    • providing preferred terms/rates to projects within CMHC’s Rental Construction Financing initiative that are within a specified distance from a current or planned frequent transit network,

    • topping up federal cost-share ratios for rapid transit projects, currently up to 50 per cent of non-land related capital costs, by a modest percentage for projects that meet or exceed housing targets, and

    • working with provincial and local governments, including Metro Vancouver, to explore a transit-oriented affordable housing fund to encourage more purpose built rental housing, with a deeper level of affordability, near existing and new transit.

  3. Adjust the mortgage stress test and amortization rules

    In 2018, the federal government enacted new mortgage rules that require borrowers to qualify for a mortgage at the higher of either the rate they’ve negotiated with their bank plus two per cent or the Bank of Canada’s five-year rate. This B-20 stress test has had a pronounced impact in BC, causing an estimated $500 million in lost economic activity.

    The B-20 stress test should be a flexible policy that is adjusted regularly to respond to economic trends.

    B-20 is now due for an adjustment for the following reasons:

    • the debt burden has increased for people unable to access conventional financing who must resort to more expensive alternative mortgage financing,

    • personal incomes nationally have risen by 12.5 per cent over the last five years, and

    • a borrower’s equity position increases throughout the term of a mortgage due to principal payments.

    Changing the stress test would help achieve the government’s goal of ensuring Canadians don’t take on more debt than they can bear, while acknowledging ongoing economic trends.

    We recommend:

    • reinstating 30-year amortizations for insured mortgages to make monthly payments more manageable,

    • qualifying all borrowers at their contracted amortization period (e.g., 30 years) instead of a 25-year period, and

    • excluding the stress test for mortgage transfers and switches, which better enables borrowers to shop for competitive mortgage terms at renewal time, and

    • employing flexible stress tests that reflect the level of risk posed by the terms and conditions of the particular mortgage, including amortization period, fixed vs. variable rate and how interest rates are forecasted to change over the term of the loan.

    To learn more, visit bchousingaffordability.ca.

Media enquiries:

British Columbia Real Estate Association
April van Ert
Communications Manager
avanert@bcrea.bc.ca
604.742.2797

Canadian Mortgage Brokers
Association – British Columbia
Samantha Gale, LLB
Chief Executive Officer
samanthagale@cmbabc.ca
604.408.9989

Landlord BC
David Hutniak
Chief Executive Officer
davidh@landlordbc.ca
604.733.9440 ext. 202

Mortgage and Title Insurance Industry
Association of Canada
Ed Steel
Executive Director
ed.steel@mtiiac-acahtc.ca
416.994.4949

Real Estate Board of Greater Vancouver
Craig Munn
Manager, Communications
cmunn@rebgv.org
604.730.3146

Urban Development Institute
Cheryl Ziola
Director, Communications
cziola@udi.org
604.719.2909

ALL the Real Estate Buying Taxes.

ALL the Real Estate Buying Taxes.

  1. Property Transfer Tax (PTT) – The  PTT is calculated on the fair market value of a property and amounts to 1% on the first $200,000 of value PLUS 2% of the portion of value from $200,000 to $2,000,000 PLUS 3% of the value from $2,000,000 to $3,000,000  and 5% of the value over $3 million.  An easy calculator to use can be found at

        http://www.bcrealestatelawyers.com/ptt-calculator/

  • PTT applies to all real estate purchases – Residential, commercial and industrial
  • Exemption from PTT for used homes;
    • Purchase price must be $500,000 or less (for full exemption)
    • Buyer(s) must be a Canadian citizen or permanent resident. However, a refund may apply if one becomes a Canadian or permanent resident within 1 year.
    • Must have lived in BC for 12 consecutive months immediately before the date of title transfer – OR have filed at least 2 income tax returns as a BC resident in the last 6 years.
    • Must NEVER have owned an interest in a PRINCIPAL RESIDENCE anywhere in the world at anytime.
    • You must move in within 92 days of title transfer and stay for at least 1 year.
  • Exemption from PTT for NEW homes;
    • The property must have a fair market value of $750,000 or less (for full exemption) – ($750,000 – $800,000 for partial exemption)
    • Buyer must be a Canadian citizen or permanent resident amnd must move in within 92 days of title transfer and use the property as a Principal Residence for 1 year.
    • If one purchases a vacant lot and build a home, one may apply for a refund once the home is completed and moved in – BUT the Fair Market Value must be under $800,000.
    • Buyer must meet all of the above qualifications.
  • Exemption from PTT for adding people to title:
    • You can add your spouse, parents, grandparents and your children and grand children BUT NOT siblings or aunts, uncles, cousins etc..  The definition of a ‘spouse’ is having a ‘marriage-like’ relationship for 2 consecutive years – and includes same gender relationships.
    • The property must be a principal residence of the Buyer or Seller for at least 6 months immediately prior to title transfer.
    • Applies to Residential property only AND classified as residential by BC Assessment.
    • The Land component must be 1.24 acres or smaller. There is a partial exemption for larger parcels.
    • There can be partial exemptions if one buyer is related and the other is not.
      • Recreational Residence  (less than $275,000)
      • Marriage breakdown – starting over again
      • Family farms involving individuals – or to or from a Family Farm Corporation
      • To correct a conveyancing error or pursuant to an Agreement for Sale
      • A Registered charity
      • To or from Joint Tenants to Tenants in Common
      • Some others on the government website.

        2. SPECULATION TAX
  • This tax applies to the owners – not with the land – and is based on the ownership as of December 31 each year.
  • Tax is due by July 2nd each year
  • Applies to; Metro Vancouver Capital Regional District, Abbotsford, Mission, Chilliwack, Kelowna, West Kelowna, Nanaimo, Lantzville. But EXCLUDES reserve lands, treaty lands and lands of self-governing Indigenous Nations.
  • 0.5% of the property’s assessed value for EVERYONE in 2018.  In 2019, it is 2% for foreign owners or satellite families  and 0.5% for Canadian citizens or permanent residents.
  • A ‘Satellite family’ is defined as an individual or spousal unit whose majority of total worldwide income is not reported on a Canadian tax return.
  • Declaration must be completed by each owner.
  • EXEMPTION from Speculation Tax
  • Applies to the property not just the seller, so if you are buying a Vancouver property make sure the seller has paid the Speculation Tax. Ask the seller for a completed and filed status declaration – a warranty confirming the property has not been vacant for more than 6 months
  • The Rate is 1% of the assessed value
  • ALL homeowners (Vancouverites) must submit their declaration
  • Detailed list of Exemptions at https://vancouver.ca/home-property-development/empty-homes-tax-frequently-asked-questions.aspx
  • 4. Foreign Buyers Tax
  • Pay 20% of the fair market value of the property – but ONLY RESIDENTIAL
  • If the property is a mixed use (residential, commercial) then the tax only applies to the Residential portion
  • Lands that fall under this tax are; Capital Regional District, Greater Vancouver Regional District, Fraser Valley Regional District, Central Okanagan Regional District and Nanaimo Regional District
  • Applies to all buyers who are not Canadian citizens, permanent residents or registered under the Provincial Nominee Program
  • A refund may apply if the buyer becomes a Permanent Resident within one year
  • The Tax liability may be split if one buyer is eligible
  • 5.  Goods and Services Tax (GST)
  • 5% tax on new or substantially renovated residential properties
  • Substantially Renovated is defined as removal or replacement of most of the house construction, except for; the foundation, exterior walls, interior supporting walls, floor, roof and staircase.
  • REBATES;  2 types
    • New Housing Rebate – 36% of the GST paid on homes up to $350,000 with a partial rebate up to $450,000. The rebate is claimed on closing.
    • New Rental Rebate (NRR) – 36% of the GST. The NRR is deferred so you will need to pay the full 5% GST and wait for the 36% rebate if you qualify
    • The GST is generally deferred on non-residential properties

The Missing Link?

The missing link between home ownership and perpetual renting remains supply. Either supply of homes to purchase, or supply of money with which to purchase.

The 2019 Budget addresses neither of these supply issues.

Short Version

1. Zero effort on creating additional housing supply.

2. Zero effort on creating access to money. On Jan 1, 2018 the Fed clawed back 40%+ of purchasing power (mortgage money) from you.

3. Dollar for dollar there is also a useless tweak to the RRSP loan program. Useless when the math is done.

4. A convoluted ‘shared ownership’ plan that creates more questions and concerns than it answers. Besides which it is only available if you borrow roughly 80% of what you currently qualify for today, which is closer to 50% of what you qualified for up until Jan 1, 2018.

5. Additional layers of complexity, that once the math is actually done on will demonstrate zero point zero zero zero zero one percent value to Canadian’s.

Long Version

Already a homeowner?  There is nothing in this budget for you.  Access to your home equity remains extremely difficult, more expensive thanks to the Fed. And your ability to move to a new home remains impaired by your existing mortgage which you may no longer be able to re-qualify for under the new rules. Still no grandfather clause for you. 

*The one minor exception re existing homeowners is for those divorcing (in 2020, so hang in there) for whom access to an extra $10,000 of RRSP money may somehow matter. (You can already break that money out of your RRSP if you truly need it, so all Fed is saving you is between zero and $4,500 depending on your tax bracket) – this will be of a slight benefit to somewhere around 16 Canadian households in 2020.

What about the ‘shared ownership’ thing? The 5% or 10% downpayment help?

To do the math on this is premature, we will have to wait and see what the details truly are. Does the government forgive part of the loan if the property drops in value at a time when you are forced to sell due to a life event? Do they share in the profit when the property rises in value?  Lots of questions.

But again, how many CDN’s with combined household incomes of $120,000 or less are not already borrowing close to the maximum they qualify for? Very few. So this program helps… very very few.

How many CDN’s can reduce their approved shopping budgets from ~$580,000 to $480,000 just to qualify for this program? What’s left to buy in their markets at that price?

These are the same people that qualified for up to $800,000 a little over a year ago before the stress test was implemented. The same people that do not miss their payments through thick and thin. But we are all being restricted anyways… just in case.

The 2019 Budget measures are effectively a further incentive towards restricting demand. Yes more ‘demand side economics’ which simply do not work.

In any event, there are many unknowns around these programs that will go unaddressed until as late as September of this year.

Should you wait to buy until then?

We’ve discussed this topic before; No.

You should never wait to buy.

When should you buy? The day you find a property that fits your budget and lifestyle for the foreseeable future (defined as ‘ability to hold the property for seven years’). That’s when you should buy.

Waiting for the government to ‘fix’ the housing situation is not a prudent option. Clearly.

Federal Budget 2019–Actions for Homebuyers

In its fourth fiscal plan, the Trudeau government spent its entire revenue windfall leaving the deficit projection little changed. In this election budget, Finance Minister Bill Morneau announced $22.8 billion over six years in new spending initiative mostly for homebuyers, students and seniors. Trudeau promised in his first budget to have eliminated all red ink by this year. He will instead head for an October election with an annual deficit of nearly $20 billion. Ottawa is projecting a string of double-digit deficits through the end of 2022.

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Are Prices Really UP?

In BC total housing sales are down, inventory of places for sale is up ….and prices are up?.

This flies in the face of what we are used to seeing in our traditional markets which were strictly Supply vs Demand driven.

If supply is high and demand is low then prices drop. Likewise, if supply is low and demand is high then prices rise.

In an attempt to make sense of this, one must first consider the way statistics are reported. We all know the problems with using ‘average’ prices – where the price fluctuation from month to month depends on the price range of homes being sold. A month in which multi-million dollar homes selling will skew the averages up versus a month in which several cheaper homes are sold.

Similar to this – but a little more reliable – is using ‘Median’ prices to determine a rising or falling market. Here, a middle sale amount is chosen where 50% of the sales are above this number and 50% of places sold are below this number.

Here we can usually see a market shifting  – especially if there is a change to the demand side such as the government suddenly changing the rules around mortgage qualifications.   However, as with average prices, median values are also going to be affected by the price ranges of homes being sold in any given month.

This brings us to the Housing Price Index (HPI) – which operates the same way the Consumer Price Index works – taking a typical basket of goods (called a benchmark home) and monitoring the changing value of that basket or home.

The definition of a “typical” benchmark home takes into account various property attributes – above ground living area, age, lot size, # of bedrooms, bathrooms, covered parking etc. as well as its proximity to amenities.

However, what it does not take into consideration is the condition of the home.  Suppose the benchmark home in Coquitlam is defined as a 35 year old 2000 square foot, 3 bed – 2 bath home on a 7200 sq ft lot.  Also suppose that there are a number of these homes for sale – such as there is currently. Also suppose that demand is down (currently sales are down almost 40%).

The reality of our market right now is that the 35 year old properties that are selling for good prices are the ones that have been renovated – either partially or completely. And it is those renovated homes that are selling before the un-renovated homes…..and selling at prices higher than the ”benchmark” price.

Conclusion: when we see a report stating Benchmark prices are 2-3% higher than they were in July of 2017 one consideration must be given to the age and condition of the benchmark home as well as the market conditions today versus a year ago.  I am sure you will remember last year with a supply of houses so low that even ‘garbage ‘ properties were selling within 2 weeks for full price or more.

Today, if a homeowner spends $60,000 renovating their 30 + year old home, they can expect to get a substantial portion of that back on the sale price. Therefore it will sell higher than a similar home with no renovations and higher than a ‘benchmark’ home.

Policy Induced Demand Slide Does Little to Impact Supply

Vancouver, BC – April 12, 2018. The British Columbia Real Estate Association (BCREA) reports that a total of 7,409 residential unit sales were recorded by the Multiple Listing Service® (MLS®) across the province in March, a 24.6 per cent decrease from the same month last year. The average MLS® residential price in BC was $726,930, up 5.3 per cent from the previous year. Total sales dollar volume was $5.39 billion, a 20.6 per cent decline from March 2017.

“More burdensome mortgage qualifications are having the predictable effect of swiftly curbing housing demand,” said Cameron Muir, BCREA Chief Economist. “You simply cannot pull as much as 20 per cent of the purchasing power away from conventional mortgage borrowers and not create a downturn in consumer demand.”

Despite the decline in consumer demand, the supply of homes for sale remains low in most BC regions. Total active listings on the market are essentially unchanged from March 2017, and are at or near a 12-year low across the province. As a result, home prices are expected to continue an upward trajectory.

Year-to-date, BC residential sales dollar volume was down 1.7 per cent to $13.9 billion, compared with the same period in 2017. Residential unit sales decreased 9.4 per cent to 18,927 units, while the average MLS® residential price was up 8.5 per cent to $732,243.

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The Economic Fallout of Housing Price Shocks

“If the BC economy tanks, we know who / what to blame. Take a look at the following from the BC Real Estate Association’s economist;”

The desire of some well-meaning British Columbians for government to drive down the price of homes through demand-side policy may sound practical at first blush. However, when you consider the broad and deep economic toll that a negative shock to home prices would exact on both homeowners and renters, it quickly becomes apparent that such an approach is at best, a mug’s game. BCREA Economics analysis* shows that even a relatively modest negative price shock will produce significant consequences to the BC economy.

BCREA Market Intelligence Report: The Economic Fallout of Housing Price Shocks

2018 BC Budget

FOREIGN BUYERS AND TAXABLE TRUSTEES PROPERTY TAX;

Foreign Buyer’s tax for Residential properties has gone from 15% to 20%, effective today. The area this tax covers has been extended from just Greater Vancouver to : The Capital Region District, Fraser Valley Regional District, Regional District of Central Okanagan and Nanaimo Regional District.

The areas for each region can be found at https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/additional-property-transfer-tax/bc-areas

– If the property is farmland or commercial with a residential component, the tax applies on the residential component.

– Exemption for BC Provincial Nominee Program still applies.

SPECULATION TAX – NEW

1. The tax is meant to target foreign and domestic homeowners who do not pay income tax in B.C.

2. The tax will apply to same areas as foreign buyers tax apart from Okanagan, where it only applies to Kelowna and West Kelowna.

3. This tax starts in 2018 at $5.00 per $1,000.00 of assessed value and goes up to $20 in 2019.

Other details are not available at this time

PROPERTY TRANSFER TAXIncrease for Properties over $3 million.

1. Tax rises from 3% to 5% on value of homes over $3,000,000.00.

2. It remains at 1% on first $200,000.00, 2% on amounts between $200,000.00 and $2,000,000; 3% on amounts between $2,000,000.00 and $3,000,000.00 and 5% on amounts over $3,000,000.00.

PRE-SALE CONDO ASSIGNMENTS

1. Developers will collect and report information about pre-sale condo purchases; nothing else in budget about pre-sale contracts or assignments that we have seen.

B.C. HOME OWNER SECOND MORTGAGES 

1.    This program is now cancelled – don’t think it was used much anyway.