Leading to and during last year, much of the real estate talk in Vancouver was centered on how to slow the market down in view of substantial price hikes. But 2017 could spark a much different type of conversation.
The 64 million dollar question is “will the Vancouver house prices drop in 2017?” Housing experts state that while there are factors pointing to this, there is still much uncertainty especially as we come to terms with the fallout of some major policies introduced by all levels of government within the last 6 months; notably:
1) 15% Foreign buyer tax. This tax was introduced in August last year by the Provincial government in response to a public outcry that blamed foreign buyers for the rising house prices.
Although it is not yet a 100% evident that the tax is responsible, the market for high-end homes has cooled with some of the foreign demand seeping into the Interior, Victoria and Toronto. While demand has cooled considerably, prices have not gone down as expected.
2) Changing mortgage rules. Recently, more stringent mortgage qualification rules were introduced by the Federal government targeting first time homebuyers. Ottawa is worried that first time homebuyers are taking up too much debt, which will cause a lot of concern if prices drop and interest rates rise.
First time homeowners are required to take a “stress test” to see how they can fare financially in times of adversity.
Other measures introduced include a decrease in the amount of money they can effectively borrow, in some cases as much as 20%. This means that first time home buyers will have to come up with a larger down payment than was previously required, forcing some to put their home purchasing plans on hold.
3) City of Vancouver empty home vacancy tax. In response to the general euphoria targeting foreign homebuyers who have bought local homes for investment purposes and left them vacant, and the very low rental vacancy rates, the Vancouver Municipal government has introduced a vacancy tax.
Beginning this year, homes in Vancouver that aren’t lived in or rented for at least half the year are now subject to an annual 1% tax. So for a $2 million home that qualifies, the owner will be responsible to pay $20,000 in taxes. Penalties for non-compliance are severe.
4) Interest free loan program for first time homebuyers. Yet to be implemented, this program introduced by the Provincial government for BC residents, offers a capped loan with a 5-year interest free period, aimed at helping first time homebuyers afford the down payment.
Since this program will be launched mid January, its impact will not be known for a few months. But the idea is to make home buying more affordable for first time homebuyers.
This measure somewhat contradicts the Federal government’s recent change in mortgage rules aimed at restricting first-time homebuyers as discussed previously.
We have yet to see the long-term impact of the recent policy changes, but one thing is certain – unlike previous years, this will be a very interesting year as far as real estate in Vancouver is concerned. So stay tuned!
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