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CIBC: It’s time for a ‘flipping tax’ on foreign investors

An economist says a flipping tax would help tackle speculative foreign investment—but do little to slow soaring house prices


 
A sold home is pictured in Vancouver, B.C., Thursday, Feb. 11, 2016. Canada Mortgage and Housing Corporation says there is mounting evidence that house prices in a number of Canadian cities are out of whack with incomes and other economic fundamentals.The latest report from CMHC says there is evidence of overvaluation in nine of the 15 real estate markets included in the research. THE CANADIAN PRESS/Jonathan Hayward

A sold home is pictured in Vancouver, B.C., Thursday, Feb. 11, 2016. Canada Mortgage and Housing Corporation says there is mounting evidence that house prices in a number of Canadian cities are out of whack with incomes and other economic fundamentals.The latest report from CMHC says there is evidence of overvaluation in nine of the 15 real estate markets included in the research. THE CANADIAN PRESS/Jonathan Hayward

In the bubbly world of Canadian real estate, the house “flip” has gone from revered to feared—depending largely, it seems, on who is doing the flipping.

The idea of buying a home, sprucing it up and selling at a profit a few months later is celebrated by at least a half-dozen popular reality TV shows, several of which are either made in Canada or involve Canadians: Love it or List it, Flip this House, Home to Flip, Flip or Flop and the strangely named Masters of Flip. At the same time, however, there’s growing angst that foreign buyers—namely from mainland China—may be getting into the game, leading to calls for some sort of speculation tax in provinces like B.C.

Benjamin Tal, the deputy chief economist, at CIBC World Markets, weighed into the debate with a research note that, effectively, concluded a “flipping tax” on foreign investors isn’t the worst idea in the world since it could help curb a potentially problematic element of foreign investment. However, Tal also acknowledged that such a tax is unlikely to have much impact on soaring house prices in Vancouver and Toronto since there’s little evidence foreign buyers are more likely to flip a property than Canadian ones.

Tal says his unscientific research into the subject—consisting mainly of a recent dinner with over 20 real estate brokers and agents who deal exclusively with foreign buyers—led him to believe the number of “pure” foreign purchasers in the Canadian real estate market is “probably much smaller than perceived by many.” A more likely scenario, he says, is a “satellite family situation” in which foreign money is used to purchase homes for family members to live in—mostly wives, children and students.

That said, Tal goes on to write that there’s a “clear sense of urgency” among many Chinese citizens to send their money out of the country because of a risk of a devaluation of the yuan. He adds that many real estate agents are also focused on a Chinese pilot program that’s being tested in five cities, including Shanghai, that allows wealthy individuals to invest at least 50 per cent of their assets in foreign markets. “That can potentially give a significant boost to what’s allocated to international property markets,” Tal writes. “And with the 20 per cent depreciation of the loonie relative to the yuan, Toronto and Vancouver look very attractive.”

The problem, of course, is that Canada currently has no idea how much foreign money is washing up on its shores, let alone how much more could be yet to come. The Canada Mortgage and Housing Corp. is currently studying the issue, as is the province of B.C. But so far there’s relatively little data to go on.

Other countries are slightly further ahead. Tal notes that Australia limits foreign purchases of homes to new housing stock while New Zealand has introduced a capital gains tax on properties sold within two years of purchase. The U.K. introduced a capital gains tax of up to 28 per cent on foreigners selling property. “It’s way too early to assess the impact of those changes,” says Tal. “But there are some early signs from Australia showing that it’s working; the share of foreign buyers in new housing demand fell from 16 per cent in Q3 2015 to the current 12 per cent.” On the other hand, critics have blamed the Aussie rules for contributing to a boom in unsightly condo towers aimed at foreign investors while doing little to bring sky-high house prices in cities like Sydney and Melbourne back down to Earth.

Yet, even armed with better data, the choice before Canadian policy-makers will be far from straightforward. In a country where nearly three of every four Canadian households own their own home, any policy designed to limit the pool of potential buyers could negatively impact a lot of families (and could therefore make the politicians who introduce it very unpopular). Indeed, the B.C. government has so far balked at calls for a speculation tax by Vancouver Mayor Gregor Robertson and others, claiming it could suck as much as $1 billion out of the local real estate sector without having a meaningful impact on house prices. On the other hand, rapidly escalating prices in cities like Vancouver are causing young families to flee for cheaper locales and creating employment headaches for local businesses—a situation likely to get worse before it gets better.

Tal says a flipping tax on foreign investors could be a “step in the right direction” while Canadians wait for more data about the scope of the problem. “We don’t know how big it is, but we know it’s not constructive,” Tal says of purely speculative foreign investment.  In other words, it’s the perfect political solution—one that promises much, accomplishes little and angers almost no one.


 

CIBC: It’s time for a ‘flipping tax’ on foreign investors

  1. But you don’t talk about the difference is a single mother with 3 children roughly 56 dollars a day.
    but a single Syrian gets 71 dollars for food a day.
    The person who lived here there whole life paying taxes receives less from government then a immigrant does so how is that fair?
    The lower class and middle class suffer from immigrants it makes it harder for them such as cost of food,rent,utility’s and jobs will pay less and minimum wage will take longer to go up based on supply and demand.
    But government and upper class benefit from immigrants because they pay more taxes on food,rent,utility’s. {PERFECT EXAMPLE VANCOUVER}

    There also is numerous negative side effects such as abuse of the services of Canada,illegal immigration,trafficking drugs,identity and financial fraud,corruption of the government.

    Especially the Asians they should be any true Canadians enemy.They are coming to Vancouver with fraudulent money,bringing heroin,take student loans get degree and just leave and never pay them back,have illegal immigrants brought over,financial bearings,extreme corruption in(VPD,government,and social services),slumlords, and they gangbang 17 year old girls(seen with my own eyes)and with all of these facts why the fuck do they have there own month in Vancouver……where is aboriginal,English,french,Italian ,Ukraine,Indian,black month WTF is this favoritism……….welcome to japanada……i been told numerous times Canada doesn’t believe in there own people but i think its the people who don’t believe a future treachery country.

    WHEN SOMEONE TAKES FOOD OUT OF MY CHILDREN’S MOUTH I M SUPPOSE TO BE HAPPY!!!!!
    ACTION HAVE REACTION PEOPLE HAVE GOOD REASONS TO DISLIKE MIGRANTS TO CANADA.

    THE DIFFERENCE IS PRINCIPLES I GIVE EVERYDAY TO CANADA THROUGH WAR OR POVERTY I WOULD STAY EVEN TO DIE OR STARVE.

    THEY TRAVEL HALFWAY AROUND THE WORLD TO CHASING GREED OR THERE COWARDS AND THEN WHEN THERE AIN’T SHIT THERE GONE…….THANKYOU COME AGAIN…..

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