Fitch Warns: Vancouver’s Real Estate Market At Risk Due To Tax On Foreign Buyer

As sales activities continue to drop due to the new tax on foreign home buyers, analysts are more anxious as to whether or not the heavy tax fine imposed upon foreign speculators would result in unemployment, said Fitch Ratings on Monday.

In the beginning of August, the state implemented a 15% tax on foreign buyers to make sure the market isn’t flooded.

The new tax system will ensure buyers wouldn’t be able to buy a lot of properties, wrote Fitch analysts. However, as signs a market cool down continue to show even before the new tax was introduced, the value of houses in Vancouver are now more likely to change than ever before—which might affect the economy.

“We feel that the foreign investors have been propping up real estate in Vancouver, creating more demand, which is raising prices,” said Susan Hosterman, director of U.S. structured finance at Fitch Ratings.

“With them potentially out of the picture, Vancouver is more susceptible to Canadian supply and demand behavior, which is mainly driven by employment.”

Despite the economic slowdown last year, the city’s job market has still managed to grow, unlike other parts of Canada. Hosterman is baffled by how long it would last, given the poor unemployment rates in other parts of the country.

In July, the city’s unemployment rate was 5.4%, according to a survey conducted by Statistics Canada. This is one of the lowest numbers recorded amongst the country’s major cities

Compared to long-term economic growth, national home prices are overvalued more than 20%, said Fitch. This puts the market at a huge risk.

Fitch reported that an updated overvaluation estimate would be published for the country’s major cities including Toronto and B.C by the end of this year.