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Deals falling apart in Vancouver under weight of new provincial tax

The deals literally disappeared overnight at Re/Max Performance in North Delta.

Three buyers, two Chinese and one Indian, just walked away from deposits in the tens of thousands of dollars for deals being worked on by agents at the Vancouver area firm.

“We’re just a medium-sized brokerage but we’re probably typical,” said Ari Lahdekorpi, the managing broker. “This is happening across the region.”

Anecdotal tales of offshore buyers walking away from deals in Metro Vancouver, rather than pay the new 15 per cent property transfer tax that only applies to them, are being heard across real estate offices. It’s the opposite of what was happening in the week ending July 29, as buyers and sellers scurried to close deals and overwhelmed servers at the Land Title and Survey Authority.

Hard data on what impact the new tax will have on the market is impossible at this point, even as the Real Estate Board of Greater Vancouver released July results Wednesday showing sales had declined and prices continued to climb. Sales through the MLS system after the July 25 announcement would most likely be for deals closing in the next two to three months — meaning sellers and buyers have only had seven days to transact in the current tax environment.

The Real Estate Board of Greater Vancouver (REBGV) said Wednesday that there were 3,226 sales in July, down 18.9 per cent from a year earlier and 26.7 per cent from June. However, prices continued to climb at about the same breakneck pace. The MLS Home Price Index composite benchmark price for all residential properties was up 32.6 per cent from a year ago to $930,400. June’s index price was $917,800, up 32.1 per cent from a year ago.

Lahdekorpi says the three deals that blew up were significant for his firm, which does about 120 deals a month. He says there is a chain reaction, whereby sellers counting on a deal to close now can’t purchase their next property because they didn’t have proceeds from the sale of their home.

“We are waiting to see how this all falls out, this isn’t even one week into it,” he said.

Dan Morrison, the president of the REBGV, says deals that were near their closing date were probably moved up to last week to beat the tax deadline. He said it will be awhile before the full impact of the tax is felt on deals already negotiated.

“We typically might have two deals a day that collapse in a normal market for whatever reason. If we get 10 to 20 deals, these are deals previously reported on the MLS system, then we will know (something is happening). We won’t know until we have more data,” said Morrison, whose organization had lobbied for existing deals negotiated before Aug. 2 to be exempted from the tax.

As for the July stats, Morrison said he personally had a deal “go sideways” after the tax announcement, but added it’s too early to make much of the numbers released Wednesday.

Doug Porter, chief economist with Bank of Montreal, who believes foreign ownership has been driving Vancouver’s market, agrees that it’s too early to link a drop in sales in July to the new tax.

“There were signs things were starting to cool partly,” he said. “I find it interesting that prices are still rising 32 per cent year-over-year. It’s way too early. These number don’t help us judge that. We’ll need about three or four months.”

Craig Alexander, who will taking over next month as the chief economist with the Conference Board of Canada, says the Vancouver market has become significantly unbalanced, yet is supported by some fundamentals including rising population, incomes, employment, land scarcity and limited new supply of single detached homes.

“Many in the local market believe that foreign buying has contributed to the excesses, and it probably has to some extent. But, no one knows exactly how much,” Alexander said.

“If you believe that the imbalances are significant and building, then targeted regulatory or other policies (like taxation) are called for to address localized real estate overvaluation. The Vancouver tax on foreign purchases is an attempt along these lines to cool the market,” he said. “However, the announcement and rapid implementation has been a shock to the market. One sympathizes with the buyers and sellers blindsided by the new tax. I also wonder whether the tax should be targeted at non-resident buyers rather than foreign buyers that will reside in Canada.”

gmarr@nationalpost.com
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