Foreigners looking to purchase a home in Vancouver now face an additional tax of 15%, as Canadian authorities seek to temper a heated housing market that ranks as one of the world’s least affordable.



The tax, which came into effect on Tuesday, will be levied on all home buyers in metro Vancouver who are not Canadian citizens or permanent residents. The measure will also apply to corporations that are not registered in Canada or which are controlled by foreigners.

Announcing the measure, the provincial government of British Columbia said the tax was intended to help cool the city’s red-hot property market, where demand from foreign investors – many of them from China – has helped push the cost of a detached home to C$1.56m ($1.2m) in June, a 39% jump from a year earlier.

“There is evidence now that suggests that very wealthy foreign buyers have raised the price, the overall price of housing for people in British Columbia,” Christy Clark, the province’s premier, told reporters recently.

Figures collected by the province during a five-week period this summer showed that foreign nationals invested more than C$1bn – amounting to about 8% of sales – in real estate in the province, with the bulk of the money heading to Vancouver and the surrounding region.

Clark has long resisted calls to intervene in the real estate and construction industries, which in 2014 accounted for 25% of the province’s GDP.

In a city where the median household income in 2014 stood at about C$76,000 a year, the proportion of detached million-dollar homes now sits at 91%. “If we are going to put British Columbians first, and that is what we are intending to do, we need to make sure we do everything we can to try and keep housing affordable,” said Clark, who leads the province’s Liberal government.

“Ultimately, the goal is to affect the demand by making sure it’s maybe a little tougher for foreign buyers to find their way into our market.”

Money collected from the tax will be put towards housing initiatives for renters, low-income residents and first-time buyers, amid record numbers of homeless in the city.

The measure, which echoes the taxes imposed on foreign buyers in Hong Kong and Singapore, was met with mixed reviews. Gregor Robertson, the mayor of Vancouver, welcomed the initiative. “It’s too early to judge whether or not [the tax] will have a significant impact, but it’s good to see,” he told reporters. Last month the city of Vancouver was given the go-ahead to impose a new tax on empty homes.



Others pointed to the loopholes that could allow foreigners to get around paying the tax by measures such as having Canadian friends or relatives purchase homes for them. The tax depends on buyers self-reporting their nationality, threatening jail time and steep fines of up to C$200,000 plus the unpaid tax for those who attempt to avoid the tax.

Still, those intent on ducking the tax will find a way around it, said David Eby, a New Democrat member of the provincial legislature. “We have a wild west real estate market where there is really very little auditing or policing of it, whether it’s around money laundering or tax avoidance or any of these issues, so this tax is going to be subject to all of those weaknesses.”

He worried the tax would make it more difficult for companies in the city to recruit and retain highly skilled workers, as it also applies to foreigners who are in the city on work permits and who pay taxes. “There’s a lot of bycatch – it catches a lot of people that it shouldn’t,” he said, citing researchers recruited by the city’s universities or specialised workers needed for the city’s tech industry as examples.

The effect of the tax will probably be evident within a few months, said Tom Davidoff, a professor at the University of British Columbia. “This could possibly have significant impact but we just don’t know how big it will be because we do not know what the foreign buyer will do.”

Some could look to homes in other parts of the province or in Toronto, where the average cost of a home stands at C$746,000, a 17% increase from one year earlier. Last week, the Ontario government said it was closely watching the implementation of the new tax in Vancouver as a potential means of increasing affordability.

Davidoff’s best guess is that the new tax in Vancouver would drop home prices by 10%. “Some foreign buyers may find a way to get around the tax,” he said. “And some people will just pay the 15%. They’re rich and they’ll do it.”