Why The BC Liberals Rushed A Foreign Buyer Tax – Absorption Rates Explained

Why The BC Liberals Rushed A Foreign Buyer Tax – Absorption Rates

Think the foreign buyer tax had an impact on BC real estate? We reviewed the latest numbers from the BC Real Estate Association (BCREA) to see what how the new tax is changing the numbers, and guess what? It didn’t have much impact at all. According to the report the absorption rate reached peak in March 2016 – moving lower since. The foreign buyer tax was abruptly implemented in August 2016 likely so the current administration could claim they cooled the market. In actuality, BC real estate prices have become so high that the market can’t support the increases we’re seeing anymore.

What Is Absorption Rate

Absorption rate is also called the “sales to active listing” ratio. It’s how real estate analysts determine if we’re in a “buyer” or “seller” market. While it sounds complicated, it really isn’t. You look at the number of homes that are available for sale in a month, the percentage that are sold is the absorption rate. If it’s above 21% according to BC CREA, you’re in a seller’s market. If it’s below 14%, you’re in a buyer’s market. Anything in between, and you have a balanced market.

In March 2016 the absorption rate reached a peak of 65%, before dropping a whopping 44% to 36.5% in July. While that’s still a very high, it’s coming down at a very rapid rate to “normal” levels. This begun a full five months before the tax was announced, and 3 months before BC began studying the problem.

Why Did It Peak?

A shortage of inventory has been occurring month over month in Vancouver. While foreign buyers have been scooping up a number of those properties, the largest issue at hand is that people in Vancouver just stopped selling their homes. This is partially due to buyer gridlock, where homes are now so expensive existing homeowners can’t support moving into a new one with local wages. The lack of vibrancy in the economy also has a lot to do with people concentrating to a small area.

The Tax Did Nothing?

The foreign buyer tax was abruptly implemented 2 months into the 6 months of anticipated data collection. While it’s being lauded as a very effective measure, it was really just haphazardly added to an already downtrending market in order to take credit for it. It’s kind of like saying Mike de Jong said tomorrow will be Thursday, and it became Thursday because he said so.

It’s a common move in politics to hitch yourself to movements larger than you can impact, and take credit for them. It just gets harder to do that as data becomes more widely available. Let’s all just hope they do something constructive with that extra tax money.



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    Is BC Real Estate Crashing? Not Even Close According To BCREA | Better Dwelling 7 years ago

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    Bob 7 years ago

    Agree the market began cooling much earlier. But politicians don’t normally accomplish anything quickly, particularly new legislation. And while they do love claiming credit for anything potentially positive, they’re usually even more concerned with anything that might blow back on them in a negative manner. So my guess is they had been discussing this for months or more. Then, in typical government fashion, they implemented their silly attempt to finally regulate the market months after it had already begun to correct itself. Having done so, however, they may have turned an otherwise temporary slowdown into a full on bubble pop. In which case they will be blamed for killing the golden goose that has been Vcr real estate.

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    Brian 7 years ago

    Rapid and/or large price escalation in residential real estate is not good economically for ah economy, it sucks money away from spending on other aspects of the economy and causes the false belief that the escalated equity is like real money in the bank. When interest rates increase, mortgagees who are at or near their financial limit are forced to sell which, if listings substantially increase and demand isn’t commensurate, will depress sale prices and could cause a panic reaction as others see this and want to cash in on their equity before it substantially declines. I’ve seen it happen in Toronto and we all saw what happened in subprime land.

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    Toronto Condo Demand Is larger Than Vancouver Real Estate Peak - Central Toronto Real Estate - Max Seal Blog :Central Toronto Real Estate – Max Seal Blog 7 years ago

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    James Tory 7 years ago

    Actually real estate prices in Vancouver aren’t that bad. Check out the MercerReport on Global city affordability. The cut back has nothing to do with anything going on in Canada it has to do with the Bank of China no longer funnelling billions out of China by special licence of the PRC government. This was stopped about two years ago. Vancouver is only high for Canadians because the Loonie has lost 30 per cent of its value in the last half decade.

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