The week’s top stories focus primarily on taxation discussion and residential home prices and sales statistics in B.C. and Alberta. In Metro Vancouver, we take a take at data showing foreign ownership and tax revenue in Burnaby, while statistics on home sales across the region continue to slide. In Alberta, we breakdown the top towns for multi-family investment based on average prices and availability.
Here is Western Investor’s pick of the most buzz-worthy commercial real estate stories published this week.
There is presently no requirement for non-residents to declare purchases of real estate raises question around rental income taxation.
One in four condos built in Burnaby in 2016 and 2017 are owned by foreign residents, recently released data shows.
The statistics from the Canada Housing Statistics Program show a higher rate of non-resident participation in the local real estate market compared to previously released figures.
Overall, non-residents owned or were partial owners of 12.6 per cent of all condos in Burnaby when the data was captured in 2018. Only Vancouver and Richmond had higher rates of non-resident ownership in the region.
And the data tells a similar story in the single-detached home market. Non-residents owned more than a quarter (25.8 per cent) of homes built in 2016 and 2017 – far higher than the regional average of 10.4 per cent in Vancouver’s census metropolitan area.
“The story is really how much non-residents really have a role,” said Andy Yan, director of Simon Fraser University’s City Program. “It gives you the context of what are some of the factors of demand and the types of demand that is helping drive the kind of supply that is happening in the City of Burnaby.”
The data doesn’t necessarily show foreign ownership, he said. The statistics track non-resident participation – properties where one or more owner is not a tax resident of Canada.
“That person, for example, could be that (Canadian) English teacher in Japan who happens to hold a pied-à-terre in Burnaby,” Yan explained. “But, at the same time, it's also where the foreigners with no ties to Canada could also be.”
Effect of policies unclear
Yan said the 2018 data is likely too old to show the full effect of B.C.’s foreign-buyers tax that came into effect at 15 per cent in 2016 and was later raised to 20 per cent.
Overall, he said, “we’re just starting” to properly address foreign investment in B.C.’s real estate and its inflationary effects.
“I think the movement towards greater transparency, accountability and, indeed taxation, is part of those moves," Yan said.
But, he said, there are existing powers to address the issue that are perhaps not being properly enforced.
When a non-resident sells property, the buyer is supposed to withhold 25 per cent of the gross sales price and remit it to the Canada Revenue Agency (CRA). The intent is to ensure non-residents pay the appropriate income taxes.
Non-residents must notify the CRA within 10 days of selling a Canadian property. The agency then charges the applicable taxes on the capital gains received by the seller. Once those are paid, the CRA issues a certificate of compliance and what remains of the 25 per cent withheld amount is returned to the seller.
Yan said there are questions about how well the withholding system is being enforced.
CRA underfunded, backlogged: lawyer
Ron Usher, general counsel for the Society of Notaries Public of B.C., said the withholding rule is a good method of ensuring non-residents pay their fair share of taxes, but the questions around proper enforcement come from a severe backlog.
While the CRA sets clear and strict deadlines for buyers and sellers alike to submit forms and remit money, he said the agency is much slower to respond.
“I just put it down to woeful underfunding of CRA and that's not the individual CRA employees’ fault – that's political decision not to properly staff CRA,” Usher said.
But a CRA spokesperson, Heidi Hofstad, said in most cases sellers notify the agency of the sale in time and buyers are not required to withhold money.
'Huge' tax leakage from rentals
Usher said there is likely far more tax revenue being lost to non-resident owners who rent out their properties without paying the appropriate income tax. That’s because Canadian law does not require non-residents to report ownership at the point of acquisition.
“If there's any place where there's a huge leakage, it's in the rental income from places owned by non-residents,” Usher said. “I'd be shocked that there's not an awful lot of rent being collected that is not being properly reported to CRA.”
Usher said he hopes the CRA uses data collected by B.C.’s new speculation and vacancy tax to identify non-resident owners earning rental income.
The tax cut means homeowners property tax will jump from 4.5 to 6.1 per cent.
The good news for owners of commercial property Monday was that Vancouver city council voted 6-5 to reduce their tax bill by two per cent over the next three years.
The bad news for homeowners is that reduction means the 4.5 per cent property tax hike council initially approved in December for this year is now 6.1 per cent.
How can council do that?
Under law, council had until the end of April to finalize its $1.5-billion budget. Back in December when council voted on the budget, it also requested staff study the feasibility of a two per cent tax shift from commercial properties to homeowners.
Staff recommended Monday against the tax shift for various reasons, including not being able to guarantee that savings from a reduced tax bill would be passed on from a landlord to a small business owner.
A blanket two per cent tax shift from commercial to residential reduces property tax for all commercial properties, without considering whether they need any tax relief, the staff report said.
A majority decision to vote against the staff recommendation clearly disappointed Mayor Kennedy Stewart, who opposed the move with councillors Melissa De Genova, Colleen Hardwick, Jean Swanson and Christine Boyle.
“The fact that we’re going to have a residential property tax hike of one per cent [this year] and that’s going to hit some people that can least afford it while this provides a tax cut to large companies—I can’t balance that,” Stewart said.
Wal-Mart, for example, is expected to receive at least a $13,000 savings.
“We’ve worked so hard to make housing more affordable, but yet this motion kind of signals the opposite,” the mayor continued. “I don’t think the vast majority of people, when they read about this, are going to be very happy.”
Stewart and the four councillors wanted to stick with staff’s recommendation, which noted work continues with an intergovernmental group to provide targeted and time-limited tax relief to commercial property owners.
That group is also examining creating small business classes and offering more “split assessments,” which aim to tax residential development potential at a residential rate, while taxing the business portion of a building at a business rate.
All of council was clear they wanted to support small businesses and to keep them from closing in a city deemed one of the most unaffordable in the world. That included Hardwick, an entrepreneur, who said she understands problems small businesses face.
“I also know that our residents are facing huge problems around property taxes, and we’ve already talked about the implications of the provincial government’s encroachment on our property tax base, in particular through the so-called school tax,” she said. “My concern is that this [tax shift] is a binary, short-term blunt instrument solution to a much larger problem.”
The city's communications department noted in an email that properties with "a higher increase in value relative to the average change of the class could experience a much higher increase in property tax beyond the council-directed increase, while properties with a lower increase in value could experience no change, or a reduction in property tax."
This applies to both residential and non-residential property classes.
Some savvy, smaller, multi-industry cities are crushing the notion that the entire province is facing a resource-linked downturn.
Canmore, the closest mountain town to Calgary, is the only Rocky Mountain resort town where private real estate investment is welcomed and thriving. This is reflected in recent residential and commercial real estate action.
In March Canmore housing sales increased 44 per cent from a month earlier, reflecting a 4.8 per cent rise in residential sales through the first quarter of this year, to 108 units, compared to the same period in 2018. This was the first time in three years that first-quarter sales eclipsed sales in the preceding fourth quarter, noted Sotheby’s International Realty.
Prices are among the highest in Alberta, with detached houses selling this year at a median of $874,000, up $24,000 from a year earlier. Condo apartment median prices rose 6 per cent to $458,600 in the same period.
Last November, Clique Hotels and Resorts opened the new Malcolm Hotel, a four-star, 127-room property and the first luxury hotel built in the resort community in 20 years.
Leduc’s population growth is among the highest in Alberta, posting a 23.4 per cent increase from 2011 to 2016, to 29,993 residents.
The city’s industrial investment opportunities are best offered by the Nisku Business Park in Leduc County, employing more than 400 companies and 6,000 workers locally, in industries ranging from agriculture to forestry to fishing.
Growth in and around Edmonton International Airport has helped provide jobs for Leduc residents, including construction of the world’s largest marijuana production facility by Aurora Cannabis. A Ford Canada 400,000-square-foot auto parts and distribution warehouse is also on the slate for this year.
Leduc’s average list price for a single-family home is presently $362,034, compared to Edmonton metro area’s average residential price of $357,316 in March 2019.
Lethbridge is the second-biggest city in southern Alberta, behind only Calgary.
It’s also one of the brightest places in Canada, with 320 days of sunshine a year.
Under construction is the $360 million Cavendish Farms frozen-potato processing plant, the largest private investment in the city’s history. The plant is slated for completion this year.
Meanwhile, cannabis grower Fifty First Parallel is building a three-phase facility capable of producing about 12,600 kilograms of marijuana by 2020, employing about 150 workers.
Most homes in 2019 sold at from $250,000 to $300,000, but six houses sold in March for above $600,000 each, reports Re/Max Real Estate Lethbridge.
Metro Vancouver residential property prices still sliding as listings pile up: REBGV – Western Investor
The board reports sales down 29 per cent from a year ago, causing housing inventory to accumulate.
Home prices across Metro Vancouver are continuing to slide, reported the Real Estate Board of Greater Vancouver (REBGV) May 2.
The board said that the composite benchmark home price across Metro Vancouver dipped to $1,008,400 in April, very close to edging back down over the million-dollar mark. This is 8.5 per cent decrease over April 2018’s price, and a 0.3 per cent decline from March 2019.
Home inventory is piling up as the number of new listings met usual market levels but sales dropped on an annual basis. The number of Metro Vancouver homes to exchange hands on the MLS in April was 1,829, a 29.1 per cent drop from April 2018. However, this was a 5.9 per cent increase from the 1,727 homes sold in March this year.
April’s sales total was 43.1 per cent below the 10-year April sales average (see interactive graph, below), which is a slight improvement over the dire figures seen the previous month.
The REBGV continued its stance in placing the blame for reduced home sales at the federal government’s door. Ashley Smith, REBGV president, said, “Government policy continues to hinder home sale activity. The federal government’s mortgage stress test has reduced buyers’ purchasing power by about 20 per cent, which is causing people at the entry-level side of the market to struggle to secure financing.”
She added, “Suppressing housing activity through government policy not only reduces home sales, it harms the job market, economic growth and creates pent-up demand.”
The board said that new home listing activity was normal for the spring season. There were 5,742 homes listed for sale on MLS in Metro Vancouver in April 2019. This is 1.3 per cent lower than in April 2018 but up 16 per cent increase compared with March 2019.
However, the sluggish sales meant that total inventory is accumulating. The total number of Metro Vancouver homes listed for sale is 14,357, which is a 46.2 per cent increase compared with April 2018 and a 12.4 per cent increase compared to March 2019.
“There are more homes for sale in our market today than we’ve seen since October 2014. This trend is more about reduced demand than increased supply,” Smith said. “The number of new listings coming on the market each month are consistent with our long-term averages. It’s the reduced sales activity that’s allowing listings to accumulate.”