Why The Foreign Buyer Tax Will Punish Local Sellers

The overall consensus after the 15% Vancouver Foreign Buyer Tax was announced was a sense of relief from locals who have been desperate for the government to act. If you’re still not sure how to feel read What To Make of the Vancouver Foreign Buyer Tax. 

Soon after the announcement though president of the Real Estate Board Dan Morrison came out and slammed foreign buyer tax. 

Dan made some really good points, specifically pointing out that current deals which were slated for completion after August 02 deadline should be exempt.

“The only people calling me more than the media today are realtors upset about this because they’ve got clients that are B.C. residents and voters that are going to get hit hard by this if their transactions aren’t exempt.”

He went on to say “If they did, that puts the seller in a very difficult situation because based on the strength of that contract, they’ve gone out and committed to buying another house. If the buyer defaults on their house, they don’t have the funds necessarily to go and buy their new home. So you could get this chain reaction of contracts that don’t complete.”

Obviously nobody wanted to hear him out. He’s head of the big bad Real Estate Board. Public enemy number 2 next to Christy Clark and the provincial government. So i’m hoping you’ll hear me out instead.

Most of you have been reading this blog for awhile now. You know i’m all for putting restrictions on foreign buyers, and cleaning up the real estate industry. I’m all for working towards solutions to the housing crisis here in Vancouver. So believe me when I say this Foreign buyer tax has holes all the way through it. Holes that will punish local sellers.

Foreign buyers who purchased homes and have firm deals in place should not be subject to a 15% tax.

First off many of these deals were done months ago and are now just waiting to sign off all the legal paperwork and transfer the title. Many local sellers who sold to foreign buyers are now being asked to amend dates and close before August 02. This is swamping local lawyers, lenders, Realtors and everyone else involved in the process.

Foreign buyer tax problems

Taxing someone 15% on a deal they made months ago and not giving them any notice, and no recourse to get out of it without serious repercussions seems a little unjust, no? Despite popular belief not all foreign buyers are loaded with bags of dirty cash. Some are putting a life of hard earned honest money into Vancouver real estate hoping to move here one day. I know because I’ve worked with clients like this.

Here’s a story for you:

I had a listing recently in Richmond. A beautiful family home for 1.8 million. A relatively average price for a home in the area. Many of the buyers who came through were foreigners. My clients were downsizing, a huge step for them. They wanted to sell their home before buying something much smaller.

We got the house sold on a firm subject free offer in May. The buyer gave us a 5% deposit worth $90,000. The deal doesn’t close until the end of August.

But knowing the deal was done my clients purchased a new condo in the area.

Now all of a sudden this new tax is unveiled. The buyer faces a 15% tax which would be $270,000. The buyer isn’t the wealthiest of foreigners. He negotiated a little off the asking price and was really pushing his limits. He had a small family to raise.

Now the buyer can’t afford the 270,000 tax and has decided to forfeit the 90,000 deposit.

My seller who was relying on the money from the sale of the house to close on their new condo is now stuck between a rock and a hard place. Forced to accept a 90,000 sympathy cheque. But here’s the problem, the market in richmond has softened since May.  That same home would be lucky to sell for 1.7 million. Now they’re out of pocket and taking on a huge risk.

Fast forward a few weeks.

They are unable to sell their home on time. They can’t close on the condo they bought. Their mortage was contingent on them selling the house.

The guy who sold them the condo is pissed. He’s recently married and was planning on starting a family.  He was relying on the sale to pay for his new house. Now he can’t close on the house. And so the cycle continues…

Vancouver lawyer on foreign buyer tax
Twitter conversation with local Vancouver Lawyer

Thankfully this story isn’t entirely true. The buyer of the 1.8 million house wasn’t a foreigner. But can you imagine if he was?