This post is an excerpt from the Saretsky Weekly Newsletter. You can subscribe here
The Liberal Government succeeded in their re-election bid, maintaining a minority Government. Given their pre-election promises, the Canadian housing market could face further upheaval should they follow through with said promises. The first of which would be a nationwide 1% annual speculation/empty homes tax targeting non-residents, and the second would be a generous boost to the first time home buyer incentive.
Previously, the FTHBI’s maximum “leverage ratio” of 4:1 meant a first-time buyer’s mortgage + CMHC incentive couldn’t exceed four times their income. And total household income was capped at $120,000, limiting purchase prices to a maximum of $480,000.
However, the Liberals have promised to boost that amount for first time buyers in Greater Toronto, Vancouver and Victoria. Qualifying incomes will be pushed up to $150,000 and mortgages and incentives up to 5x their income. Thus, a first time buyer could qualify for a home with government assistance up to $790,000.
This could spell trouble in the nations frothiest cities which are still facing supply woes in that price bracket. Take Vancouver, for example, despite a significant correction in the broader housing market, activity remains robust for homes under $790,000. There is just 3.7 months of inventory for sale in this price range, indicative of a sellers market, and generally speaking applies upwards pressure on prices. In other words, the Liberals proposed scheme to provide loans for first time home buyers up to a purchase price of $790,000 is likely to increase demand where inventory remains tight, ultimately shifting much of the benefit to home sellers, not home buyers.
Not to be outdone, the BC Government announced new policies of its own. Effective May 1, 2020 BC will enact new rules to help end hidden ownership and crack down on criminal activity in its fight against money laundering and tax evasion.
The changes come after multiple scathing reports including one from the Canadian arm of Transparency International, which noted the government doesn’t know who owns nearly half of the 100 most expensive houses in Vancouver, due to lax rules surrounding ownership of companies and trusts. And another study of more than 1,200 luxury real estate purchases in B.C.’s Lower Mainland in 2016 which found that more than 10 per cent were tied to buyers with criminal records. And 95 per cent of those transactions were believed by police intelligence to be linked to Chinese crime networks.
“Hidden ownership is distorting our economy and driving up our real estate market. The previous government let criminals shelter the illegal proceeds of crime, but we are listening to British Columbians, experts and municipalities to end hidden ownership.” Lamented BC’s Minister of Finance, Carole James.
The new amendments to the Business Corporations Act will require private businesses in B.C. to keep and maintain transparency records of beneficial owners, including individuals who have direct or indirect control of the company or its shares. Information collected includes full legal name, date of birth, citizenship and last known address.
The move is likely to be another crushing blow to Vancouver’s luxury housing market which is still succumbing to gravity after peaking nearly three years ago. There is already a plethora of homes for sale in the luxury market. There is currently 29 months of inventory for sale across Greater Vancouver for homes priced $3M and up.
B.C.’s Expert Panel on Money Laundering estimated that $7.4 billion was laundered through B.C. in 2018, $5 billion of which is estimated to have been laundered through real estate. The findings of the report concluded disclosure of beneficial ownership was the “single most important measure that can be taken to combat money laundering.”
The crackdown on criminal activity, money laundering, and tax evasion in BC is certainly a welcoming concept.