On February 16th the provincial government tabled it’s 2016 budget. As expected, there were some attempts to address the housing market in that budget. Specifically:
- No PTT on new construction priced under $750,000
- Applies only to Canadian citizens or permanent residents.
- While this is a constructive move to help add supply of property to the market, it will take some time to have effect. It will also have limited effect within the confines of the City of Vancouver as the $750,000 cap would preclude it applying to houses, townhouses, duplexes and any larger condominiums.
- It would have been smart to index the cap of $750,000 so that it floats with the ups and downs of the market. Today it may apply to studios, one bedrooms and smaller two bedrooms, but in ten years time it will likely only apply to studios and small one bedrooms (should prices continue their upward trajectory).
- A new threshold for the PTT was created. Any amount over $2,000,000 is taxed at 3%.
- The Property Transfer Tax is 1% on the first $200,000, 2% from $200,000 to $2,000,000 and 3% on anything over $2,000,000.
- With prices as they are, this new measure will see it’s greatest impact on real estate within the City of Vancouver boundaries. While this measure is intended as a luxury tax, a typical house in the city is now $2,000,000 and on the west side it is $3,000,000.
- The $2,000,000 threshold should be indexed to the market. Just as the original PTT when it was introduced in the early 80s, this new tax affects a relatively small part of the market. Over time, however, more and more of the province’s real estate will be affected by this tax.
- The provincial government will now require all buyers of property in the province to identify their citizenship whether bought personally, through a business or a trust.
- This is a measure that we have long needed introduced. Having this data on the market will inform the debate around foreign ownership. This data used to be collected, but the program was stopped in the 80s. It makes sense to have the information on which we can base decisions in the future.
There were a couple of notable omissions from the budget that we’d hoped to see:
- The PTT exemption for First-Time buyers did not increase from the current cap of $475,000. This amount is not indexed, but the government will periodically increase it as prices increase over time. Increasing the cap would have been a way for the provincial government to help make home ownership more affordable for first time buyers.
- The PTT amounts were not indexed to market values. Originally set at 1% on the first $200,000 and 2% on the balance it was intended as a luxury tax (the new threshold of 3% on value over $2,000,000 was just added). 95% of properties in BC were worth less than $200,000 when the PTT was first introduced. Without adjustments over time the higher tax amount has grown to apply to well over 95% of properties in Vancouver…and the same will happen with the $2,000,000 threshold.