For Vancouver home buyers who get the shivers at high prices for even run-down houses, there is also the haunting sight of a tax goblin.
The B.C. government’s property-transfer tax has become a growing burden for buyers in the Vancouver region’s housing market over the past 27 years. The province introduced the PTT as a way to generate revenue, especially targeting the upper crust of B.C. house purchasers.
But the province-wide formula for the tax hasn’t changed since 1987, when Vancouver-area homes were much cheaper. Today, on the purchase of a $5-million home, the buyer has to pay $98,000 for the PTT. On a $2-million home, the tax rings in at $38,000, and on a $1-million property, the extra outlay is $18,000.
The B.C. government collected $937-million in the 2013-14 fiscal year from the tax. Housing industry observers note that the province’s coffers get an added lift when wealthy buyers, including those offshore, acquire high-end homes.
The PTT formula works like this: On the initial $200,000 of the purchase price, the home buyer must fork over 1 per cent of that first tier and then pay a 2-per-cent tax rate on the amount above $200,000.
The Real Estate Board of Greater Vancouver estimates that 96 per cent of properties in the region sold for at least $200,000 last year. That contrasts sharply with 5 per cent of properties in 1987 that changed hands for $200,000 or higher.
Far from being a targeted tax on the wealthy, the PTT’s net captures the vast majority of buyers of detached homes, townhouses and condos in Greater Vancouver, the board argues.
In this past February’s provincial budget, the B.C. Liberal government announced an improved break for eligible first-time home buyers. Those who qualify could save up to $7,500 on buying their first house, as long as that property is acquired for $475,000 or less, up from the previous threshold of $425,000.
B.C. Finance Minister Mike de Jong tweaked one aspect of the broader tax system in February to make up for the revenue lost from giving tax relief to some first-time home buyers. The province decreased the threshold for phasing out the homeowner grant from $1.295-million to $1.1-million in a property’s assessed value, effective the 2014 tax year. In short, the change means that more homeowners will be paying higher municipal property taxes annually.
Despite the tax burden, housing demand remains robust in Vancouver, says Dan Scarrow, vice-president of corporate strategy at Macdonald Realty Group.
Mr. Scarrow doesn’t see a Vancouver housing bubble because many existing homeowners have lived in their abodes for at least 15 years, before the sharp run-up in prices. With small or non-existent mortgages, there isn’t financial pressure on those long-time homeowners to sell, and they can afford to hold out for higher offers when they do decide to move for whatever reason, he reckons.
“It comes down to huge demand globally and restricted supply locally,” Mr. Scarrow says.
The benchmark home price index last month hit a record $633,500 for detached homes, townhouses and condos sold in Greater Vancouver, which includes suburbs such as Richmond, Burnaby and Coquitlam. On Vancouver’s west side in September, the index hit a record of nearly $2.3-million for detached properties.
Having grown accustomed to a cash cow, the B.C. government isn’t about to dramatically revise the PTT formula any time soon. The province conservatively forecasts that revenue from the PTT will be $854-million in 2014-15. That would be down 9 per cent from the previous fiscal year but still more than double the revenue garnered in 2002-03. From the province’s viewpoint, the tried-and-true PTT isn’t a scary trick, but a valuable treat inside its revenue bag.