Early this week, the Canadian government imposed some corrective measures to the housing market, following sustained concerns. Measures include identifying loopholes in paying capital gains tax as well as future stress-testing of certain mortgages, intended to tighten the noose around borrowers to get home loan approvals.
This isn’t the first step towards regulating the housing market – back in August, the government decided to impose a 15% tax on foreign buyers, intended to end tax breaks on home sales by owners not residing in Canada.
A report by UBS has highlighted Vancouver to be the most likely of cities to experience a crash. Vancouver’s sharp spike in housing prices have not been exacerbated by neither the financial crisis nor weakening commodity price. There has been significant devaluation since 2007, stated the UBS research.
Central Credit Union 1, a Canada-based financial institution, the British Columbia housing market will stay strong through 2018. In a press release, Bryan Wu, senior economist at Central Credit Union 1, said that policy changes could dampen home sales in Metro Vancouver, but Central 1 has lifted its outlook for Vancouver Island markets, parts of British Columbia southern interior as “in-migration and low interest rates will drive sales and tightening inventory will lift prices”. He added that the new tax would likely lead to a temporary but definite short-term cut in sales.
While it is evident that the Canadian government is taking steps to curb the housing market issue before it implodes, there are several theories that suggest the cause leading to a market clamp down by regulations. Among the more popular ones is the high number of Chinese buyers in the Vancouver housing market, forcing locals out of the competition to buy homes at competitive prices. While the Far East’s fascination for Canada cannot be overlooked, it is noteworthy how the cumulative interest has spurred an entire economy over the years. However, now the very interest in the Canadian market appears to be impinging the interests of the locals. The theory has been echoed across several sections of society, but probably in hushed undertones, given how Canada is known to be very friendly and tolerant of all races and origins of people. Now, it appears to be taking a louder stance than before, with more residents voicing their concerns about an imploding market.
Realtors and financial experts say it is too soon to speculate the impact of the tax on Vancouver’s housing market, but it has sent a clear message to the citizens about market regulation. The UBS report mentions that the “bubble risk” isn’t likely to lead to a price correction like in the USA back in 2008, but it is warning sign that shouldn’t be ignored.
Kimberly Rivers is an editor at Global Business Outlook, and covers finance, technology, energy, real estate, brands & education. You can reach her at firstname.lastname@example.org