AGORACOM Small-cap Investor Relations Blog

On July 25, 2016,  the same day the BC Government introduced a 15% tax on foreign real estate purchases, I published the following article:

15% Foreigner Land Transfer Tax Guarantees Vancouver Real Estate Crash and Toronto Real Estate Boom

As of March 30, 2017, I was mostly bang on.  Toronto real estate took off like a rocket and, while Vancouver real estate prices themselves didn’t crash, this equally impactful prediction came true: ”

“A near instant liquidity freeze on Vancouver real estate –  including DOMESTIC buyers who will have no appetite to buy into a frozen market.”

The data backs me up 100% as follows:

A]  Prices are down 9%.  The same people who couldn’t afford a $1.6M home last year, can’t afford it this year.

B]  Total Vancouver real estate transactions are down 31.5% – that’s a liquidity freeze.

C] The dollar volume in the Greater Vancouver market was $7.4 billion over the first quarter, down from $13.3 billion a year ago. 50% drop? That’s a liquidity freeze.

D] Active listings across British Columbia dropped 18.1%.  That’s a liquidity freeze.

Borrowing from Infomercial language if I may … BUT THAT’S NOT ALL!  HERE’S THE BEST PART … THE FOREIGN INVESTORS WEREN’T HURT – THE LOCAL HOMEOWNERS TOOK THE BIGGEST HIT 

The highly reputable C.D. Howe Institute claims “the people who have really felt the sting of the provincial tax are homeowners who already purchased property and not foreign buyers.” …. “The B.C. government’s intent was to lower prices and stabilize the market, but the drop in prices and number of sales shows that locals looking to move feel the harm of the tax.”

None of this even takes into account the impact of middle income workers that are employed in the construction, renovation, supply and sales process.  When transactions are down over 30% and the total value of those transactions are down 50%, middle income workers are taking a big hit.

6 REASONS WHY KATHLEEN WYNNE JUST KILLED ONTARIO MIDDLE CLASS WITH REAL ESTATE “MEASURES” ANNOUNCED TODAY

1. It was blindingly obvious from the press conference this morning that Wynne, Sousa and the Provincial Liberals had NO strong and actionable data of any kind other than “prices are high”. They were pressed for data several times by reporters and openly admitted they had next to no route cause data to go on.

When you have no data and choose to simply throw darts and see what sticks, your likelihood of success is extremely low.

2. Rental controls are going to significantly reduce condo purchases by those intending to buy them as investments and rent them out for the long term.

3.This will lead to fewer condo developments in the long term, thereby reducing supply of rental units and exacerbating the problem for … the middle class.

4. Purchasers taking delivery of condos already in development in the next 3 years are going to charge TOP DOLLAR for rentals due to future constraints on increases, as well as, fewer anticipated condos. This will exacerbate the problem for …. the middle class.

5. There were no measures introduced to open supply via 905 land development. If Wynne and the Liberals were truly concerned with cooling prices, this would have been one of the best possible measures. Instead, they chose their flawed environmental agenda over …. the middle class.

6. The 15% foreign tax on real estate purchases will have the same horrible effect it had in Vancouver. Prices are down a few %, so the same people who couldn’t afford a home last year still can’t afford one this year. But middle class homeowners who rely heavily on their homes for wealth will soon take the same hit experienced by the middle class in Vancouver.

CONCLUSION – Middle income Ontario citizens will suffer, not benefit, from these misguided housing policies which, let’s face it, are primarily window dressing for the 2018 Provincial Election. Shame on you if you fall for them.

Best,

George