Last month, British Columbia’s new NDP government announced a pair of new tax legislations that were to be implemented in hopes of ‘cooling’ the red-hot real estate markets in both Vancouver and Victoria. The first one was a raising of the foreign buyers’ tax from 15 to 20%, where any non-resident buyer will pay the province a 20% tax on top of the listing value. The second measure, a speculation tax, takes effect this fall and will apply to foreign and domestic investors who don’t pay income tax in the province, starting at 0.5% of the property’s assessed value in 2018 and rising to 2% for following years.

Our online real estate lead generation system has been quite successful for new realtors entering the business, and the vast majority of them have quickly become very knowledgable about real estate in Canada. Those on the West Coast will almost certainly agree that affordable housing concerns are legitimate, but that ‘meddling’ with market economics typically isn’t the way to affect widespread, positive, and long-standing change in any economic sphere.

It’s important for realtors to be vocal about concerns they have about this trend in the Province. It certainly isn’t ‘PC’ to do so right now, but the fact of the matter is that these measures forecast to be largely ineffective for controlling the cost of real estate for BC. Furthermore, and perhaps more troubling, is that they actually also look as though they’ll be punishing certain homeowners who made smart, timely investments in real estate during years previous.

One Side of the Coin

No one will argue the fact that real estate speculation and the many spinoffs – absentee ownership for one – that go along with it are a huge problem in Vancouver. Housing is a human necessity and one that’s by and large been accessible for Canadians for well over a hundred years. However, we’re not just at the beginning of a global economy, we’re at the beginning of a global world and foreign ownership of real estate and an especially moveable global population is the norm now.

Will these taxes work to make housing more affordable for Vancouver residents? Yes, but not to the extent that people envision, and likely only in the short term. First of all, you must keep in mind that a very considerable amount of real estate investment (including speculation) is domestic in nature – meaning its Canadians who are investing in Vancouver real estate, and yes, many of them don’t live in homes in Vancouver. To think that the majority of real estate speculation and absentee ownership is coming from abroad isn’t incorrect, but it’s barely a majority.

These taxes won’t be impeding domestic buyers in the slightest. Yes, if someone from Halifax wants to buy a home here and leave it vacant they’ll have to pay yet another tax for absentee ownership, but they’re perfectly free to do that and the value of the property long term may make it a reasonable cost of doing business or investing.

Factor in the most basic of supply and demand economics and the effectiveness of these new tax measures looks even less promising. There are ever greater numbers of people – both immigrant and Canadian – who are aiming to move to the Lower Mainland. The supply will never meet the demand (or it’s extremely unlikely given the expansion / building / zoning constraints that are unique to Vancouver) and thus homes that are decidedly affordable for an investor will almost certainly increase in value exponentially in a short period of time – making any ‘tax’ on the property something that can be swallowed given the profit margins forecasted in future resale.

It quite simply is what it is. Vancouver’s not unique in this regard big picture; look at London, Sydney, even San Francisco down the coast. Real estate in globally popular locations is ALWAYS going to be super pricey now. The train’s left the station.

The Other Side

So now we need to look at it from the perspective of buyers who bought homes during the ‘peak’ period of some 7 to 10 years ago. Like most smart people, they worked hard and saved to be able to buy homes and then bought them with the aim of having that house, condo, or whatever it may be being both a home AND an investment in their future.

You know, like the same way it’s been being done for decades and generations now.

And again, most of these buyers bought at the time armed with the knowledge that Vancouver’s housing market is increasingly hot every year and they could leverage those market dynamics in their favour for future well being. Particularly appealing for a young family, most notably.

You know, like the same way it’s been being done for decades and generations now…

If you look at it critically, it’s very hard to make a lot of sense of the NDP government’s decision to pander to voters and introduce these taxes as sort of a placation move to appease certain people while

1. Being just as aware as all of the economists and real estate industry experts that these measures will be largely ineffective in the big picture / long term, and
2. Making it so that homeowners who were judicious and willing to do what it took to buy a home years ago stand to lose on the value of their home when bringing it to market

Keep in mind that no previous generation of young, first-time homebuyers has ever been presented with such a tangible and summarily-imposed impediment to realizing the value of the home they’ve invested in. That’s a fact.

If we’re going to live in a global world and enjoy all the benefits that come with that, we also need to accept the realities that come along with it as well. Real estate in Vancouver, Toronto, L.A., San Francisco and elsewhere is going to continue to be out of reach for most people living on the North American continent, and the factors that make that so are NOT going to be negated by a handful of property tax moves design to placate disgruntled voters.

Remove one set of buyers from the picture (if at all really, however) and you’ll have new unimpeded group set to take up the vacancy left by them. Real Estate investment in Vancouver and elsewhere in Canada has changed forever, and these measures are both misdirected and indirectly punitive to existing homeowners. Particularly first-time homebuyers who’ve worked hard to be where they’re at. It’s wrong to put these people in a disadvantageous situation just because a certain portion of the resident demographic in a city isn’t in a position to adapt to new global realities particularly well.

And again, that’s really what this is – a new global reality.

Realtors, like everyone else, shouldn’t hesitate to speak to their local representation regarding this matter. A house should be a home, but they’re ALWAYS going to be investments as well and reactionary, knee-jerk moves are never helpful.

Sign up with Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads delivered to you exclusively for your own protected region of any city or town in Canada. It’s a great way to supercharge your client prospecting efforts.

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It doesn’t take either a homeowner or realtor to understand that deciding on an asking price for a home is a process that isn’t straightforward in the slightest. And it’s very rarely an obvious equation either, with a whole host of specific factors coming into play that are unique to the home, the homeowner, and the neighbourhood.

A client’s asking price is one of the most important things to evaluate with them as you prepare to list a home. A property that is priced too low may result in the client selling themselves short and receiving ‘low ball’ offers. Alternately, being priced too high may result in no offers being presented at all.

Here at Real Estate Leads, our online real estate lead generation system is proven effective for creating more client generation opportunities for any realtor that could use the assistance in the formative stages of their career. Once you have that opportunity, the best way to impress a would-be client is to know your stuff – and make it clear that you know your stuff!

Knowing what a home is worth and being able to communicate that logically and effectively is a big part of that. Here are 5 pricing mistakes you can have your client avoid to ensure they’re getting the most out of their home sale:

1. Basing their price on another home’s asking price

Homeowners can ask whatever they want for their property, but that doesn’t mean that your client should be basing their decision based on what neighbours have sold for. They don’t want to be caught making the same mistake if that home – unbeknownst to them – didn’t sell for anywhere near what was being asked for it in the beginning. Instead, clients are best advised to base their price on what similar homes in your neighbourhood have clearly sold for and looking at many of them is an essential part of that evaluation.

2. Basing their price on recent renovations

Expecting to see a 100% return on investment with renovations is entirely unrealistic, especially if the renovation was specific to the clients’ own tastes, many of which are off-putting to potential buyers. If your client is renovating for the purpose of increasing a sale price, advise them to make sure the renovations are neutral and be up front with them about the reality of any such unrealistic expectations.

3. Basing their price on how much of a return they ‘need’

Sellers who have bought a new home before they sell their previous one are often inclined to believe they need (and are entitled to in some cases) to sell their home for $X in order to pay for their new one. Others will approach it thinking that they need to sell for $X in order to make a profit on the house.

The problem with this line of thinking is that it bears no relationship to market dynamics and realities. These types of buyers tend to have homes languishing on the market before they often eventually sell for a much lower price. Advise clients that it is better to save themselves the additional mortgage payments by setting a fair price from the start.

4. Basing their price on a different type of home or a home in a different location

If your client owns a semi-detached, they should not be comparing their home to the detached home that recently sold around the corner. That’s a different home and even though the location isn’t what they’d consider to be any different – it is a different location, even if it’s just hundred of metres away. The same goes for the neighbourhood – comparing usually leads them down the wrong path. It’s part of a good realtor’s responsibility to steer them away from that.

5. Starting with a “Let’s see at this price” point

The most common mistake homeowners make is starting at a higher price ‘just to see if I’ll actually get it.’ If clients know how much they should realistically receive from the sale, then they should be pricing their home accordingly right from the start. Anyone who overprices their newly-listed home will be eliminating many buyers who identify your inflated price as being out of their budget. Sometimes these buyers are your ideal buyers, but that original error eliminates them from the picture permanently

So much of your clients’ success as sellers depends on setting the right price for their home within the current market. Keep in mind that the longer the home has been for sale and the greater number of times they’ve had to reduce their price, the more likely buyers are to think there must be something wrong with that property.

Sign up with Real Estate Leads here and receive a guaranteed monthly quota of qualified, online-generated buyer and / or seller leads delivered to you – and only you – for your similarly exclusively protected region of any city or town in Canada. It’s a great way to supercharge your client prospecting efforts and you’ll quickly come to see it as a very smart investment in the health of your real estate business.

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For a new realtor, it won’t be difficult to understand the basic nature of these terms and how they relate to the local Real Estate Market, and what types of pricing and inventory conditions would promote them. But it’s helpful to have a more thorough and fundamental understanding of them, as being able to relate how current market conditions will affect your clients home sale or home purchase process is a significant part of what will make you a knowledgable realtor and one that is thus held in high regard by those clients.

Here at Real Estate Leads, our online real estate lead generation system for Canadian realtors has been very beneficial to realtors who want to hit the ground running with their prospecting efforts. Resources are always best paired with insight and understanding. While all new realtors will have an expanse of it following their becoming certified, it’s always helpful to go the extra distance when you can.

So today let’s look at what makes up a buyer’s, seller’s, or balanced market in greater detail.

It’s a little more detailed than a simple grasp of a seller’s markets meaning conditions are favourable for sellers to get higher prices for their homes, buyer’s markets allowing buyers to come in at lower prices, and balanced markets being balanced.

One of the Three

These three market labels are generated in relation to housing supply and demand, and they’re related explicitly to statistical data. A standard way of measuring and classifying the market is to evaluate the sales-to-new-listings ratio. The comparison between the volume of sales in a given market compared to the volume of listings coming onto the market indicates how much demand there are for houses in that area and how many qualified buyers are legitimate prospective buyers for those homes.

A seller’s market is one where the sales-to-listing ratio is generally at 60% or more, translating to six or more sales for every 10 new listings. A balanced market will have a ratio between 40% and 60%, while a buyer’s market will have less than four sales for every 10 new listings.

We can also measure market activity by looking at the rate at which homes are currently selling, or the number of months of inventory – or MOI as it’s referred to. The Canadian Real Estate Association (CREA) states that the MOI indicates the duration of time it would take to liquidate current inventories entirely at the current rate of sales activity. If we are to follow this measure, a seller’s market is in place when the MOI falls at or below four months.

A balanced market falls between four and six months, and a buyer’s market is when the MOI is in excess of six months.

In Practice

Crunching numbers isn’t an absolute necessity to have a sense of what kind of market you’re in, however. A preliminary idea can be formed by paying close attention to what’s going on in your neighbourhood. If you’re in a seller’s market, you’ll start to see a large number of qualified buyers competing with each other for a small number of homes. This allows the home sellers to increase their asking prices – and often receive exactly what they’re asking for, or more. With this lack of inventory, seller’s markets can push buyers to make stronger offers with shorter closing dates, few or no conditions, and even cash deals in some instances.

Buyer’s markets, oppositely, can force sellers to be more competitive with their prices and often result in homes being on the market much longer than they would be in a more balanced market.

Seasonal Influences

Most markets across Canada share the fact that summertime is a great time to buy or sell, independent of the current market type. A realtor should have a sense of conditions in their neighbourhood, and clients rely on the realtor to guide them accordingly. While this applies to buyers too, it is of particular importance to clients selling their home.

There will nearly always be varying degrees of supply and demand at play, but individual factors like local property developments or plans for expanded civic infrastructure, for example, can affect prices. Aim to be a real estate professional who can accurately inform their client whether or not they’re selling for the right price or buying at the best price possible. It’ll do wonders for your renown with them, and in the big picture your reputation overall.

Sign up for Real Estate Leads here and receive a guaranteed monthly quota of qualified, online-generated buyer, seller, or buyer AND seller leads delivered to you exclusively and for your similarly exclusive region of any city or town in Canada. It’s a smart investment for any realtor who needs to get much more out of their prospecting efforts early in their career.

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Realtors and homebuyers alike will almost certainly agree that speculation in the Canadian real estate market has become hugely problematic, and it seems now that British Columbia is taking measures to address and reduce the frequency and widespread nature of it. The Province’s 2018 budget was introduced along with a 30-Point Plan For Housing Affordability In British Columbia. With it comes the most aggressive strategy for tackling real estate speculation Canada has ever seen.

Our online real estate lead generation system here at Real Estate Leads has made it easier than ever for realtors to get more out of their prospecting efforts, but in the bigger picture there has to be a steady supply of prospective buyers out there for those buyer leads to exist in the first place.

Having buyers come from varied demographics – and most certainly having the majority of them being local – is something that stands to benefit the real estate business as whole, rather than a select few catering to a very isolated and smaller investor-exclusive segment.

Here’s the most important points from the B.C. 2018 budget that looks to impact real estate prices in the Province.

2% Annual Speculator Tax

The new annual speculator tax takes aim at both foreign and domestic homeowners that do not pay income taxes in BC. The tax starts at 0.5% of the assessed value of the home, and that assessment will begin this fall. It will gradually increase to 2% by 2019, with most homeowners being exempt from this tax. Instead, it targets those with high worldwide incomes who pay little to no taxes in BC. Audits will be used to ensure compliance.

This tax is necessary because BC has seen a number of low income households with the family head surprisingly owning very expensive real estate. The suspicion is that they are not declaring international income, and it’s these same individuals who one of Canada’s largest banks has also recently decided to crack down on as well when it comes to issuing mortgages.

Luxury Transfer Tax Increase

The wealthiest of homeowners will now be presented with an additional transfer tax, and for the past 2+ weeks the property transfer tax above $3 million has been increased from 3% to 5%. The province is also increasing the provincial school tax for these homeowners. The message? Luxury home prices are only for those who can truly afford it.

Some might see these as ‘eat the rich’ tax schemes, but it’s actually addressing a very real issue in Vancouver and – to a lesser extent – Victoria. Take note of how tear-down homes have been trading to speculators for often well over $3 million, before buyers tear it down to build their dream home – often ‘luxury housing.’ Many of the tear-down homes are perfectly livable, attractive, and most importantly functional and keeping them as inventory on the market makes much more sense.

Increasing The Foreign Buyer Tax

The expansion and increase of the province’s foreign buyer tax also became effective 2+ weeks ago. The 15% tax levied on property transfers to non-residents buying in Metro Vancouver will now be upped to 20%, and expanded to the Capital Regional District, the Fraser Valley, Central Okanagan and Nanaimo Regional District as well. The idea behind expanding it is to prevent any non-resident speculation from relocating itself into neighbouring communities.

Non-residents buy 1 in 5 condos in Vancouver, and condos have long been the starting point for homeowners. Excess pricing pressure is needed to break the chain so the first-time homebuyers can get into the market. A situation where young people with good jobs can’t get into the housing market isn’t good for anyone, real estate professionals included.

Consider as well that 1 in 5 overseas buyers are only the ones that hold the property through completion. The foreign buyer tax does not address speculators engaging in pre-sale flips, making the next measure of the budget quite necessary.

Crackdown On Pre-Sale Flipping

The province had now chosen to create a mandatory database of condo-presale buyers. No longer will it be only developers that know exactly who were buying and flipping properties. This newly generated information will be shared with federal tax authorities and, more importantly, will give the province some hard numbers on the real extent of this problem.

All it takes is 5% down to play the condo speculation game. Across Canada, condo assignments are being utilized to make up an ‘as you go’ real estate derivatives market. You buy a pre-sale for 5% down, and then sell the assignment to someone else before the next 5% comes owing. Like margin trading for the stock market, or buying options? Exactly.

Being able to buy a $1,000,000 condo assignment with just $50,000 down is preposterous enough to begin with. But being able to sell it for a 5% increase before that next 5% is due just builds on that absurdity. Close that and you made $50,000 on a $50,000 investment. This type of behaviour has to stop, as homes are for housing and not for an investment.

Moving To End Hidden Ownership

B.C. is also aiming to track beneficial ownership of property, with the Land Title and Survey Authority set to start requesting additional information on property transfers. They’ll also maintain a publicly accessible registry of beneficial ownership of all properties and share that information with tax authorities, and law enforcement if necessary.

Sign up with Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and seller leads delivered to you exclusively for your protected area of any city or town in Canada. It’s just what you need to give yourself more opportunities to turn prospectives into clients and grow your business.

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