Foreign, Speculative Investments, and the Construction Management Industry

Soaring housing prices have been a serious challenge in Canada for years now. Different stakeholders have also made numerous proposals, and part of this vague picture of possible solutions includes foreign and speculative investment issues. Below are some discussion points on this matter, as well as their relevance to the construction management industry and other relevant issues.

Current status

The first two items in the British Columbia 30-point plan for a fairer housing market read as:

  • Taxing speculators who are driving up housing costs
  • Increasing the foreign buyers tax rate to 20%

These actions, while intended to be part of the solution, are still being hotly debated today by different critics. Reactions from British Columbians have also been solicited, and a Mustel Group’s survey says that the British Columbians support measures to reduce speculative investment. From this point of view, it would seem like the movement to impose tax on the speculators is just the right option.

On another note, boggling questions have also been laid down to challenge these actions. For instance, some are very keen in asking if foreign investors are the ones driving the prices of housing. This question surfaced in lieu of increasing foreign real estate investment, especially that of China, whose outward real estate in general increased more than 200-fold in 2014, based on a University of Alberta occasional paper series report by Kerry Sun.

Construction Management Industry

Another part of the 30-point plan includes investing $6 billion-plus investment in affordable housing, which falls under the general direction of “building the homes people need.” This hefty investment was labeled as the largest one poured by the government for housing affordability. With such investment, more housing developments are expected and thus, increasing housing supply. When this path is pursued, construction management industry can play a big part in boosting the housing supply in the country.

Data is the Key

In the same 2015 report by Kerry Sun, it was argued that there is a need to have a better set of data to help guide all the stakeholders to the proper direction of housing in Canada. This is true especially when we are talking about foreign investment on real estate. It says that while foreign investments could affect the housing market of the country, the degree of effect can vary. Hence, enhanced collection of different foreign investment-related data, such as policies, can serve as a grease to ease the rough-and-tough decision-making for Canada’s real estate industry.

The 30-point British Columbia covered some parts of the data collection aspect of the housing crisis. Relevant points in the plan include:

  • Taking action to end hidden ownership, including a new beneficial ownership registry
  • Expanding information collection and information sharing with federal government to prevent tax evasion

Actions are indeed being taken by different stakeholders, but the crisis, of course, will not vanish in an instant. One thing is for sure – all eyes are in this predicament. The real estate industry in Canada might continue to be on fire in the coming years, but all hopes are toward its betterment.

The Pros and Cons of the BC’s Speculation Tax on Real Estate

Talks about property taxation can seem very intimidating, at best, or very murky, at worst, depending on the level of knowledge you have regarding housing issues, property laws and policies, and real estate jargons in your community. Case in point: one of the hottest issues circulating right now in the British Columbia community: the BC’s Speculation Tax on real estate.

You can scoff and say that this does not concern you: a middle-class homeowner in British Columbia who refuse to dabble in real estate. “I’m no speculator,” you might even say. That could be true, but this issue might affect you and your children, too.

Before we get into that, let’s see what the BC’s speculation tax on real estate is all about.

What is the BC’s speculation tax on real estate?

The speculation tax was first brought into our attention on February 2018, when the new BC government released a list of its provincial budget. This list introduced new taxes to be imposed, one of which is the speculation tax.

According to the BC government’s website, the speculation tax was designed to “take on” the provincial housing crisis, and “help make housing in overheated markets more affordable and available.” It is supposed to target speculators: people who invest in extra property in the hope that its value will increase profitably in the future. Through the BC’s speculation tax on real estate, the government aims to “force” speculators to open up these idly sitting properties to the market, unless they want to pay the 0.5% speculation tax on top of their property tax.

To help us see clearly, here are provisions of the BC’s speculation tax on real estate in bullets:

  • The tax applies to speculative properties on certain parts of the province

    According to the website, the tax will only be enforced to properties within the largest urban centres: Metro Vancouver, Capital Regional District (excluding the Gulf Islands and Juan de Fuca), Kelowna and West Kelowna, Nanaimo Lantzville, Abbotsford, Chilliwack, and Mission.

  • The tax applies to all speculators—foreign, Canadian, and British Columbian

    If you’re a native or a foreigner who owns property within the aforementioned British Columbian urban centres, you are expected to pay the tax. It doesn’t matter if it’s a family vacation house, or it wasn’t bought for speculator purposes. As long as it sits idle, it has to be freed for rental for at least six months a year, or the speculation tax will apply.

  • Taxes will apply on houses that are vacant and valued more than $400,000

    The 0.5% speculation tax will be based on the total value of your vacant or secondary properties. According to the Macleans website, there is also tax credit given for those who declare their BC income, but this is still unclear.

  • Special exemptions are provided

    According to the BC website, if the owner resides in a hospital or undergoing long-term care in a supportive care facility; temporarily absent because of work; or deceased, then the speculative tax exemption may apply. This also includes estates that are being administered.

The Flipside of the BC’s Speculation Tax on Real Estate

With the introduction of new policies come critics and sceptics; this does not mean they’re not welcome, though. These are few of the issues brought to the table by sceptics of the new tax, mainly from BC property developers.

  • The BC’s speculation tax on real estate does not solve the housing crisis

    For the ultra-rich, as pointed out in a Macleans article, 0.5% is a small sacrifice to pay to build up property and keep them vacant. In fact, the speculation tax will only most likely burden middle-class BC and non-BC residents from the property they are keeping for their families.

  • What the housing crisis is to reduce the cost to build

    According to Daniel Greenhalgh of ENM Construction Management, the speculation tax will not help lower housing and rental prices by freeing up more housing stock. What would help is for government to reduce the cost in building more houses.

The many issues that surround the BC’s speculation tax on real estate are far from over, but it helps for us to keep tabs on the pros and cons that may affect you and your family.