A radical plan to stop rich overseas residents from buying houses and new condominium properties as investments will be published in a report by a leading right-wing think tank on Monday.
Concerned that many middle and lower income earners who cannot afford to buy are being forced to pay high rents, the report calls on government officials to adopt a scheme similar to one operating in Australia, which ensures no sale can take place to overseas buyers unless it will add to housing stock.
Such a system would mean that no existing home could be sold to a foreign buyer. Furthermore, new units could only be purchased by non-residents if their investment will result in one or more additional properties being built.
Before you get too happy or upset with this proposal, I should point out it does not apply to Vancouver. It was made earlier this year in London, England from where I am writing this column.
It is interesting to compare foreign-owned vacant properties in London and Vancouver.
A U.K. property firm estimated that in 2013, 70 per cent of “new-build” properties in Central London went to foreign investors, while 30 per cent of London’s luxury homes worth more than £1million were bought by non-U.K. residents.
The problem was not confined to the top end of the market since overseas buyers were also acquiring less expensive units in new developments.
While the situation may be good news for real estate agents and those wanting to sell to foreign buyers, it is not good news for those being priced out at the bottom of the market.
In London there is also a concern that foreign investment is distorting what developers are building, with disproportionately more high-end developments targeted to these buyers.
Last year, the U.K. chancellor announced he was closing a loophole that allowed foreign investors to make huge profits on sales of U.K. homes by avoiding any capital gains tax. A 28 per cent capital gains tax will begin in April 2015. In Canada, foreign investors already pay tax on any real estate gains.
The U.K. has also imposed a 15 per cent “stamp duty rate” for foreign investors who buy through corporate shell companies. In comparison, Hong Kong now charges an extra 15 per cent tax for all non-residents.
The opposition Labour Party is proposing a “Mansion Tax” that would apply to homes costing two million pounds or more ($3.7 million). It would equate to an additional payment of 250 pounds per month ($470) although those earning less than 42,000 pounds ($77,000) would be allowed to defer payment until they sell or die.
The U.K. government, local politicians and others are also advocating that local councils impose higher property taxes on foreign investors who leave homes empty.
This past June, London mayor Boris Johnson added his voice by urging local authorities to “whack up council tax” on houses that remain empty for more than a year.
Local authorities can already impose a 50 per cent tax increase if a property remains vacant after two years. However, local councils are not pursuing the additional tax because of the administrative difficulties in determining which properties should be penalized.
Some absentee owners are avoiding the council tax surcharge by “moving in a table and chair.”
Liam Bailey, global head of research at the estate agent Knight Frank, told the Independent in May: “The problem with measures to tackle empty homes or under-occupied homes, whether sensible or not, fundamentally comes down to practicalities. Namely, how government can actually define and then identify empty homes. The practical implications of the policy are likely to be limited.”
What is significant is that in the U.K., the federal government is very much a part of the conversation.
In Vancouver, the federal government has been silent.
For these reasons, notwithstanding the national attention COPE mayoral candidate Meena Wong has attracted with her call for special municipal taxes on foreign-owned empty properties, one must question whether this is at all realistic.
On the other hand, NPA mayoral candidate Kirk LaPointe’s proposal to study what programs have worked and not worked in other jurisdictions may not be as ill-advised as some critics have claimed.