Market Update

    West Side Property Values

    How has the Foreign Ownership Tax Affected Them?

    Many of us are wondering what effect the new government legislation is having on property values, namely the new additional Provincial 15% tax being added to the Property Transfer Tax, when a property is purchased by a Foreign Entity.

    Looking at Mackenzie Heights, there have only been 21 sales reported in that MLS sub area since August 1st, 2016. It is therefore difficult to ascertain if the full effect of the tax has yet taken effect, but we do have evidence to work with.  It is noteworthy to mention that in this same period in 2015 we had 34 reported sales (assuming it takes 2 weeks for a sale to firm up and be reported), so we are down 38% in regards to volume.

    The good news for home owners is, in regards to sale prices, we are definitely up in value from this time last year. According to the Real Estate Board of Greater Vancouver, the average price of a home in Mackenzie Heights in 2015 was $2,919,700. In November, 2016, it was $3,615,900.  An increase of 24% in property value in just 1 year – DESPITE the new tax.

    MLS HPI (Home Price Index) for Mackenzie Heights
    MLS HPI (Home Price Index) for Mackenzie Heights

    Is this correct? We have to take this statistic with a grain of salt as it is an average sale price and, with such a small sample size involved while analyzing just one neighbourhood, it can be easily skewed.  A more microscopic approach can help here. 3265 West 27th Avenue sold for $3,251,000 on November 19th, 2015 and then resold again on $3,700,000 on September 13th, 2016. This represents a 14% increase in that time period.  It is important to note that this is not quite a year and it’s possible that September 2016 is lower (or higher) than we are at now.  Regardless we are still up in value from where we were last year, despite the new imposed taxes.

    3265 West 27th Avenue, Vancouver
    3265 West 27th Avenue, Vancouver

    Now let’s compare this to the MLS statistics for the entire west side, as it gives us a large sample size which will be more accurate than the MLS statistics for only Mackenize Heights.

    When writing this (Dec. 21), there have been 281 detached sales in the Vancouver west side from August 1st to now.

    In November, 2015, the average price of a home in the west side of Vancouver, according to the Real Estate Board of Vancouver, Home Price Index, was $2,864,500. In November, 2016, the Real Estate Board of Vancouver Home Price Index found that the average price of a home in the west side of Vancouver was $3,521,000. This represents a 22.9% increase year over year, despite the introduction of the foreign ownership tax.

    MLS HPI (Home Price Index) for Vancouver Westside
    MLS HPI (Home Price Index) for Vancouver Westside
    1725 Southwest Marine Drive, Vancouver
    1725 Southwest Marine Drive, Vancouver

    As before, if we analyze one specific re-sale, we can get an indication if that estimate is accurate. 1725 Southwest Marine Drive sold for $1,910,000 on October 22nd, 2015 and then resold on October 3rd, 2016 for $2,250,000.  We will, for the purposes of this discussion, assume it is indicative of the Vancouver west side. This is almost exactly one year period, and a useful one, as the second sale date is well after the introduction of the foreign ownership tax. The result is a 17.8% increase, again less then the 23% increase that the HPI suggests.

    Here is a total summarization of our findings below:

    Mackenzie Heights

    Real Estate Board                             24% annual increase

    Re-sale Analysis                                14% annual increase

    West Side Vancouver

    Real Estate Board                             23% annual increase

    Re-sale Analysis (marine)              17.8% annual increase

     

    In my opinion, the resale analysis is the most accurate as it deals with a specific example. When using an index, the results can be skewed due to limited data during a particular time period or data that is weighed towards one end or the other. It is hard to argue with the re-sale analysis.

    So, in conclusion, we are looking at a 14-18% increase in the west side of Vancouver from November 2015 – November 2016, despite the announcement of the foreign ownership tax. The market did peak in June this year and then come down in August as a result of the tax announcement, but we are still up quite healthily. It is hard to say where we would be now if the tax wasn’t announced. We could be up more, but extremely rapid price increases are not always desirable as it can cause over heated inflation, which later can lead to a larger reduction and more wild market swings.

    Based on the evidence studied in this report, I am of the opinion that the tax implementation was a good measure to cool the overall market activity without causing a crash or reduction in property values.

    Jason Upton, CRA, RI(BC)