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Comment by ansy | Hacker News Reader

You misunderstand. This is a 15% premium on the entire purchase price. So for a $2M home the tax would be $300k [1].

[1] http://www.theglobeandmail.com/news/british-columbia/bc-to-t...

I'm surprised that this has a material effect. I can't imagine that someone who is willing to buy a $2M home not to live but to park money from overseas is somehow not willing to pay $2.3M.

I suspect it's a sign that they're a lot more leveraged than one might expect. These people are not paying cash as long as money is near-free. They'd be total fools to pay 100% of 1 house instead of 20% on 5 houses. So consider a conventional mortgage that typically requires 20% down and you get it back when you sell, plus a profit. With these rules, they now have to pay 20%+15% to hold it, and they lose the latter portion to the government, plus significantly higher tax annually.

I'd guess they're good enough at this game that they're even more leveraged than the 20% conventional downpayment requirement and probably using the (bubble inflated) equity to print new money out of thin air and get another property.

I have no idea what's actually going on but this is how I've seen people speculate on real estate in other markets and seems like the obvious thing to do. I would even guess that there are ways of borrowing against money that is still in China, which subverts their restrictions on moving money.

I also predict that this hiccup will be invisible within 6 months, for two reasons.

1. Nobody goes shopping for houses in December and January because it's cold and there is Christmas/Lunar New Year etc, especially with the storms this year.

2. These restrictions are going to have loopholes and a market this big has an implicit bounty on finding them. They'll figure out how to get Canadians to hold the title to dodge the 15% foreign tax and they'll sign rental agreements with their lawyers kids/pets and say it's officialy rented or whatever else they need to do.

It's not that they are all 'not living there'.

They might live there, or have a family member/student live there, or their wife/kids while they stay in China.

These people might be a little 'price inelastic' but also 'not stupid'. A 15% advantage for local buyers gives some leverage.

It could also just be a little skittishness - 'what will the tax be next year'? Or 'will this cause other buyers to be skittish because if that happens, prices will drop, so I'll hold off'.

15% will definitely pull out a chunk of buyers - that pull out might be enough to make those buying 'at any price' not enough to keep the bubble up.

Finally - Toronto saw a big increase after Van put in the law. The money just may have switched gears into TO.

Consider this: if you were trying to park your money somewhere safe, like a bank, and they said that in order to make a deposit you had to pay a 15% non-refundable fee, wouldn't you look elsewhere, especially if it was a $2M deposit?

The problem wasn't just parking, it was also the constant short-term flipping. Basically Chinese were speculating between themselves with a good chunk of GVA real estate, and that's what was driving the bubble.

If investors are buying with the intent to flip properties for a profit in the future then the tax significantly limits that profit. It'd make more sense to buy in other markets without such a tax.

If the intent is to just park money then a 15% cost to do so might or might not make sense.

I think that would be true if all potential locations had the tax. As they are just parking their money, the exact city they buy into doesn't matter too much to them outside of the economics.

The Vancouver housing market is one of many. If all it takes to avoid the tax is to buy a place in Toronto or Seattle, then why not?

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