Foreign buying numbers for Toronto and Vancouver real estate are going to spike soon. The registry will likely be hammered with higher numbers, and climb at a rapid rate. This will look like the non-resident speculator tax, and China’s capital controls are starting to fail, but that’s likely not the case. Most of these units about to hit the registry were bought months, and possibly years ago. Canadians are about to be bluffed because not even government officials understand the flaw with their method of data collection. Here’s the problem, and why the numbers are going to soar. Even though an increase in foreign buying is very unlikely here.
When I think of a foreign buyer, I think non-productive speculator. Someone that sits in another country and buys property through an agent. Someone who will likely never see the property. Basically, urban land bankers. These buyers add additional pressure to housing stock, and pocket the profits on flips overseas, paying very few local taxes. Unfortunately, that’s not how the numbers are tallied. They also include immigrants, and people with work visas as well.
Most Canadians don’t have an issue with immigrants, and people on work visas in Canada. After all, they pay taxes and contribute to the local economy. The government gives these people a break. For example, Ontario offers a rebate to people becoming permanent residents, or have attended school for more than two years. Even though these people get a rebate, they’re still counted in the foreign buying numbers, due to how the numbers are collected. Let’s quickly discuss how that process works.
How Foreign Buyer Numbers Are Born
When a person falls in love… with their money. Kidding. Foreign buying numbers are created when a non-resident registers a property transfer. When a non-resident hands over their property transfer tax forms, they also have to file a form for a non-resident speculator tax. Yes, even if they’re eligible for a rebate. This pumps the foreign buyer numbers higher than the actual tax that will be collected. Speculator numbers are reported higher as a result.
There’s also one more issue that may come from this method, one that makes it seem like numbers are going to climb just a year after a non-resident tax was passed in Vancouver. This issue is a result of how pre-sale condo construction works.
Foreign Buyers and Condo Pre-Construction
It’s probably one of the worst kept secrets that Toronto and Vancouver condo pre-sales are heavily marketed overseas. Many scalp the assignments, selling them back to locals for 10s of thousands in profits. Yet these numbers are never included in foreign buying numbers because they never register land, the buyer of the assignment does. Some units are held through registration however, and these are the ones that count towards our foreign buying numbers.
Source: CMHC, Ministry of Finance (BC).
Over the past two years, the median length of time construction has taken is over sixteen months in Vancouver. This means quite a few foreign buyers that will be hitting the registry, bought well over a year and a half ago – at least. Knowing this, and the current number of units currently under construction, it’s going to appear that foreign buying is skyrocketing. Especially when contrasted with a significant decline in sales volume in resales.
Remember, people want you to think that foreign buying is the primary driver of prices. Foreign buyers do contribute to price increases, but they’re a small part of the bigger issue – speculation. Locals are under the impression that home prices only go up, providing massive liquidity for any speculator that has more capital. This disproportionate focus tends to blind buyers, to the point where they don’t want to understand numbers, and they become highly susceptible to manipulation. This will be very likely the reality in the coming weeks, as the numbers get misread by media.
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