Vacant Homes Tax Increase Looms Large; Greater Vancouver Condo Market Update
The recent announcement that the City of Vancouver will triple the vacant homes tax for 2021 comes as more negative news for condo investment owners. Condo values have already dropped over 21% in Vancouver proper. The zenith price point occurred during January 2018 at $1.092 Million. As of October 2020 the average price has dropped to $861,000. As if prices being down $231,000 didn’t hurt enough, now the city has passed a vacant home tax increase from 1% to 3% of the tax assessed home value for the upcoming year.
The early investors are still up in terms of their investment, prices were $750,000 during 2016. Late investors who purchased during 2018 are already underwater. The average condo purchase price inside of Vancouver was $915,000 during 2018. Signaling a current loss of $54,000 over a three year investment.
Eitel Insights forecasts prices inside of Vancouver will ultimately retest the $725,000 - $775,000 price threshold during the upcoming years. Which would again leave the 2016 investors roughly even after a 5 year investment, but indicate a loss of $140,000 - $190,000 potential loss for the 2018 purchases. Based on the 2018 average price of $915,000.
The exodus out of Vancouver proper has been a real event due to the Covid induced “work from home” movement. Condo’s for sale in Vancouver are at the highest level since 2014 with over 2,600 condo in October 2020. The inventory levels will increase over the upcoming years with the continued completions of presold properties, the vast majority of which were sold to investors.
On average a foreign owner of an empty unit during 2021 based on the current condo values of $861,000 would incur a tax bill of $25,830 from the city of Vancouver’s raised empty home tax, and another $17,220 in the provincial empty home tax. Total of $43,050 just in the empty home applicable taxes.
Overall, Greater Vancouver condo values are down 9% from the market peak during January 2018. Current prices have dropped from September’s $699,000 average sales price to $685,000 in October.
That decrease in prices has resulted in a technical test of the uptrend which began after the market found it’s near term bottom of $643,000 in June 2019. If prices indeed break the uptrend, price volatility will likely ensue which would send prices lower in the upcoming year.
Investors in and outside of Vancouver proper are still going to be paying higher tax assessments due to the year over year increase by 3% on average across Greater Vancouver Condo market. This will result in a higher 2021 tax assessment invoice than what was paid during 2020. All home owners pay property assessment taxes.
Owners of vacant properties outside of Vancouver proper will continue to pay a provincial tax of 2% for vacant homes owned by foreign ownership & satellite families, or 0.5% for vacant properties owned by Canadian citizens or permanent residents.
Inventory across Condo market of Greater Vancouver remains at the highest level compared to the preceding 5 years. The growing level of inventory will not stop after 2020, this inventory count will likely test as high as 9,000 active listings before the market bottoms out. With just under 6,200 active listings currently on market this may seem farfetched, but when you add in all the new completions set to transpire in the near future, and notice a significant fall off of investment purchasing. The upcoming oversupply of condo units will force competition amongst sellers to significantly intensify.
