A recent supreme court ruling and the looming provincial election spells changes for Western Canada’s commercial real estate market and so it seems fitting that a portion of this week’s top stories tackle that discussion. In addition, our roundup includes booming Lethbridge’s investor success story and Vancouver’s unflappable condo market.
Here are Western Investor’s most buzz-worthy stories on real estate published this week.
As the NDP and the Liberals are ramping up their campaign platforms for the upcoming provincial election on May 9. The NDP are attempting to one-up the Liberals’ foreign buyer tax policy by promising to instate a retroactive component to the tax.
Earlier this month, the province moved to water down the foreign-buyer tax, lifting it on international citizens who hold a B.C. work permit and pay taxes in the province. Premier Christy Clark also suggested there might be compensation for such people who had paid the tax on a home purchase; those individuals who purchased a principal residence on or after August 2, 2016, will be able to apply for a retroactive exemption.
But the original tax was not broad enough, said David Eby, the NDP housing critic and MLA for Vancouver Pont Grey.
“The problem with the foreign-buyer tax, unfortunately, is it doesn’t affect anyone who got into the market before the tax was introduced,” Eby told Business in Vancouver.
Eby said that, under the NDP’s proposed Housing Affordability Fund and Speculator Fee Act, a foreign national who did not pay taxes in B.C on his or her income would be subject to a retroactive foreign-buyer tax on all B.C. home purchases, regardless of how long the properties had been owned. Eby said an NDP government would apply a 2% tax on the assessed value of all such property.
It is retroactive in that it applies from when the tax was introduced in legislature.
The NDP would also close what Eby termed two “loopholes” in the foreign-buyer regulations: the use of trusts and other corporate vehicles to disguise home ownership and the exemption on transactions of pre-sale condo assignments.
Amidst Alberta’s slowing economy, there’s a bright spot. Unlike other cities dependent on the province’s oil and energy sector, Lethbridge’s investment activity is seeing considerable growth, with several commercial projects on the go.
Confidence is growing in Lethbridge’s commercial real estate market, as the city was ranked by Avison Young as Alberta’s strongest municipal economy for 2017. Expansion projects in the city are capitalizing on Lethbridge’s enduring stability.
Avison Young’s 2017 market forecast made the claim in January, and real estate professionals and the city’s economic development office say it is holds true four months into the New Year. Unlike some areas in the Prairies, Lethbridge is less susceptible to boom-and-bust cycles linked to oil prices. Lethbridge is far more reliant on infrastructure and business investment growth and its booming agricultural industry, city officials say.
The Avison Young report noted that office and retail vacancy rates are declining, particularly in West Lethbridge. The University of Lethbridge is located in the area, bringing more new students in each semester.
“The majority of residential growth for the city has primarily occurred on the west side for the past several years, which has sparked commercial growth in these new neighbourhoods,” said Trevor Lewington, CEO of Economic Development Lethbridge.
With a growing population of millennials moving to Lethbridge for school, the retail market was strong in 2016 and is expected to remain that way into 2017. The City of Lethbridge has invested in the development of the Crossings, 60 acres of mixed-use land in West Lethbridge hosting grocery anchor tenant No Frills. The city recently spent more than $41 million on construction of Phase I of the Crossings Leisure Complex. Phase II is set to be completed by 2019 and has a budget of nearly $110 million.
“Until recently, there has not been any major commercial development for the retail and office sectors [in West Lethbridge],” said Jeremy Koot, senior associate at Bankers Commercial Real Estate. “As West Lethbridge continues to grow, so does [our] commercial development.”
The report notes businesses are considering moving or expanding their offices to West Lethbridge to capitalize on the increased population.
The 2016 Canada Census showed the city’s population had expanded 10.8 per cent to 92,729 since 2011, making it the fifth fastest growing city in Canada and third fastest in Alberta, trailing only Calgary and Edmonton. Most of the city’s growth has been in West Lethbridge.
When Lethbridge’s surrounding towns are rural areas are added, the trading population is 117,394.
Koot says the office and retail markets across the city are currently experiencing the strongest growth in sales so far in 2017, while industrial sales remain steady.
A new Supreme Court ruling will crack down on residents who falsely claim to be tax-paying residents of Canada when they’re not, the Sun reports. This affects investors and real estate agents alike who don’t properly ensure their clients are bonafide Canadian residents as defined by Canada Revenue Agency.
A B.C. Supreme Court ruling will send shock waves through the arm of the Canadian real-estate market that is powered by foreign capital, say immigration lawyers.
The ruling targets a weakness in Canadian laws that often leads foreign owners of real estate in cities such as Metro Vancouver and Toronto to claim they are “residents of Canada for tax purposes” when they are not.
The landmark B.C. decision requires notary public Tony Liu to pay his client more than $600,000 because Liu failed to adequately determine whether the Vancouver house his client was buying for $5.5 million had been owned by a tax resident of Canada.
As a result, the Canada Revenue Agency did not get paid, at the time of the sale, the 25 per cent capital gains tax it charges non-resident sellers of Canadian property on any profit they make on the sale.
So the CRA later demanded the buyer pay the $600,000 in tax. The buyer, in turn, sued Liu, arguing Liu failed to discover the seller was not a tax resident of Canada.
The CRA considers people who don’t live in the country at least six months a year and don’t pay income taxes here to be foreign property investors and speculators and thus subject to capital gains taxes.
Three Canadian immigration lawyers said the CRA tax-residency rule is often not enforced, even in overheated housing markets in Vancouver and Toronto that are in part fuelled by offshore money.
The complex ruling published this month by B.C. Supreme Court Justice Kenneth Affleck strikes to the heart of a gaping hole in Canadian tax, immigration and property-transfer law, say the immigration lawyers.
The B.C. decision is a stark warning to real estate agents, notaries and lawyers who fail to ensure that sellers of properties are truly tax residents of Canada, said David Lesperance, a tax and immigration lawyer based in Toronto.
“This truly is a game changer,” said Vancouver immigration lawyer Richard Kurland.
“It’s a precedent. Real estate agents can now get a knock on the door from the taxman, asking for the (capital gains) taxes that should have been collected by Ottawa, because the agent failed to make adequate inquiries.”
Vancouver’s housing prices are finally cooling – but not in the condominium market. According to Business in Vancouver and a recent report released by RBC, prices of single-detached houses have decreased quarter-over-quarter, but condominium prices continue to increase.
According to RBC’s Housing Trends and Affordability report released March 30, it was more difficult to afford a condo in the Vancouver area in Q4 than it was a year—or even a quarter—ago. The affordability measure was 46.1% in Q4, which means it took 46.1% of the median household income to cover the cost of owning a condo at market price in the region. This is up 0.2 percentage points compared with Q3 and an increase of 4.8 percentage points year-over-year.
In its report, RBC said this was the seventh consecutive quarterly increase for this measure.
For single-detached homes, affordability eased in the quarter, falling 6.6 percentage points. Year-over-year, however, it represents a 14 percentage-point increase. The city still remains the most expensive in the country by far, with the measure sitting at a staggering 121%, which means the cost of owning a house exceeds what the average family makes.