Recent talk of putting some control on the demand side of foreign investment in Canada

Published June 27, 2016 by Real Estate Leads

Foreign investment is not the only problem with Vancouver’s stratospheric prices but proper taxation would help to fix Vancouver & Toronto’s home price inflation.

The most drastic fix, now being talked about, is to put a cap on Vancouver’s seemingly out-of-control home price inflation through some taxation on foreign real estate investors. It is logically about the most the effective way to simmer down Vancouver’s epic market rise; without precipitating a market collapse.

Stopping foreign investment entirely is not a nice, nor effective solution, as foreign investment is only one of the drivers of high prices; but it has been a quite noticeable one indeed.

So if our politicians can get their minds properly wrapped around the issue then some intelligent new taxing regulations could effectively put a damper on the recent run-away market behavior – which most experts are saying is a bubble that will eventually suddenly/remarkably pop.

When investors come in and purchase real estate who actually have no intention of living, nor working, in Canada, but instead principally as a profit-generating investment – that is the problem that needs to be addressed. A portion of the foreign investors are only involved to transfer funds internationally and/or make quick money.

In a nutshell what is being discussed is “taxing speculative activity”.

Australia and New Zealand & and other areas experiencing similar housing problems have successfully implemented foreign ownership tax rules and laws. Australia has made a rule that restricts foreign investors to purchase only *brand new* developments.

Australia is saying, that if you build something new, at least they are creating some extra GDP – some economic momentum, employing people, adding something to the economy for the benefit of all. If they are just playing the resale market, then they really not adding anything to the economy – only higher prices.

Vancouver faces a fundamental supply problem, as do many other large cities such as Toronto; so solutions like taxation are limited in how effect such changes may have.

Vancouver is an island … from a real estate perspective. In Vancouver, the supply can not be soon expanded, but taxation of foreign-non-resident speculation can help control Vancouver’s staggering home price inflation.

A solution to the drastic home inflation trend being seen in Vancouver and Toronto can be found by discouraging demand.

These aren’t our ideas – just a summary of what we see being discussed on real estate forums. What are some of your ideas? We would love to hear from you.

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