In its August 22 statement, credit ratings agency Fitch sounded the alarm on the potential wave of unemployment that would stem from British Columbia’s new 15 per cent property transfer tax on foreign home buyers.
Fitch analysts noted that the city is now more vulnerable to fluctuations in the national economy, taking into account that the market has shown indications of cooling down even before the implementation of the levy.
In this light, the reduced consumer activity due to the tax is especially worrying, Fitch stated.
“We feel that the foreign investors have been propping up real estate in Vancouver, creating more demand, which is raising prices,” Fitch Ratings director of U.S. structured finance Susan Hosterman explained.
“With them potentially out of the picture, Vancouver is more susceptible to Canadian supply and demand behavior, which is mainly driven by employment.”
MLS data covering the period prior to the introduction of the tax revealed that sales volume in the Greater Vancouver area dropped by 18.9 per cent year-over-year in July, despite the 32.6 per cent price growth in the same period.
Meanwhile, recent numbers from the Canadian Real Estate Association showed that monthly sales have declined by 21.5 per cent since February’s record highs.
A prevailing climate of cheap credit has aided and abetted the growth of the Canadian housing segment (especially in Vancouver and Toronto) over the past few years. Intensified demand from wealthy foreign nationals has also propelled Canadian real estate prices to unprecedented heights, with the benchmark price of a detached home in Vancouver rising by 38 per cent year-over-year in July, up to $1.58 million.
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