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Say what? The market continues to see moderate price acceleration and overvaluation due to low supply, despite record level construction.” Eric Bond, Principal Market Analyst (Vancouver) CMHC, July 26, 2017 News Release Here

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Paul Krugman - Patrimonial Capitalism
Thomas Piketty - Capital in the 21st Century

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"OSFI tells some banks to test for sharp drops in Vancouver, Toronto housing markets" July 26, 2016 CBC News

“B.C.’s 15% tax on foreign homebuyers could drive money to other parts of Canada” July 26, 2016 Financial Post 

"Tory won't rule out a tax on foreign real estate buyers in Toronto" July 28, 2016 Toronto Sun

​"Chinese-language media up in arms over B.C. foreign buyer tax"  July 28, 2016 Globe & Mail

“Does this set a dangerous precedent in the minds of foreign investors across Canada?" July 29, 2016 Mortgage Broker News

The Automated Payment Transaction Tax

In its simplest form, the APT tax consists of a flat tax levied on all transactions. The tax is automatically assessed and collected when transactions are settled through the electronic technology of the banking/payments system.

The APT tax introduces progressivity through the tax base since the volume of final payments includes exchanges of titles to property and is therefore more highly skewed than the conventional income or consumption tax base.

The wealthy carry out a disproportionate share of total transactions and therefore bear a disproportionate burden of the tax despite its flat rate structure.

The automated recording of all APT tax payments by firms and individuals creates a degree of transparency and perceived fairness that induces greater tax compliance. Also, the tax has lower administrative and compliance cost.

Think about the desirability and feasibility of replacing the present system of personal and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive revenue neutral Automated Payment Transaction tax.

The APT tax rate from the original study publication in 2000 achieved the goals of replacing the present system of personal and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive revenue neutral Automated Payment Transaction tax of only 0.15% on each side of the transaction for a total of 0.3% on any financial transaction.

The APT tax proposed is designed as a revenue neutral replacement for the present tax system. It is emphatically not intended as an additional source of revenue. It proposes to broaden the tax base by eliminating all implicit tax expenditures, all exemptions, deductions and credits while adding to the tax base the enormous volume of transactions representing exchanges of property rights to real and financial assets and liabilities. The flat rate tax required to maintain revenue neutrality is estimated to be in the neighborhood of 0.6 percent if total transactions volumes fall to half of their current levels.

With the next renewal (of the “Inflation Control Target”) approaching in 2016, the Bank is focusing its review and research in the following three areas:

1) The Level of the Inflation Target​
2) Financial Stability Considerations in the Formulation of Monetary Policy​
​​3) Measuring Core Inflation

“The social state is advantageous only when all have something and none too much.” A paraphrase of Jean-Jacques Rousseau from his Du Contrat Social ou Principes du Droit Politique of 1762.

How economic inequality harms societies - Richard Wilkinson
"If you want to live the American dream, go to Denmark.”

“A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it."

Real Time with Bill Maher
Michael Moore – Where to Invade Next ​

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Chronically low interest rates since the Pit of Gloom in March 2009 have fueled a huge credit bubble in Canada. StatsCan as far as I can tell does not highlight luxury sales, but the Bank of America credit card division does as the chart shows. I have added to the mashup a sales chart of detached housing in West Vancouver, one of Canada's most expensive postal codes for real estate. Is the FEAR OF MISSING OUT shifting to the FEAR OF GETTING IN for hopeful West Van buyers? ​

Asian buyers won 28% of Christie’s offerings world-wide. but a big reason for the drop in the list of sales below was the disappearance of the heretofore relentless Chinese bid. (Year/Year Data)
​
Art Sales down 33%
Auction Sales down 37.5%
Private Broker Art sales down 10%
Contemporary Art sales down 45%
U.S. Art Sales down 50%
Europe Art Sales down 12%
Hong Kong Art Sales down 11%
Rival Sotheby's Art Sales down 22.6%
Tefaf Art Market Report: Global Art Sales down 7%
Asian Art Sales down 33%

Christie’s said only 29 artworks it sold during the first half achieved prices exceeding $6.5 million—compared with 47 the year before—with nothing selling for anywhere close to the $180 million that Pablo Picasso’s “Women of Algiers (Version O)” brought in 2015."

CLICK CHART TO ENLARGE 2008-09 FINTRAC disclosed 197 cases out of 556 involving transactions through the MSB (Money Service Business) sector.

Businesses suspected of being involved in ML/TF (Money Laundering and Terrorist Financing): import/export (e.g. food, clothing, medical supplies) financial services real estate transportation, trucking, air, taxi car sales/rentals/repairs convenience stores electronics/computer sales gas stations & petroleum providers non-profit organizations

COOLING OFF THE BC REAL ESTATE MARKET
FROM THE TOP DOWN

In our real estate law practice we have seen houses steadily rise over the past seven or eight years and jump drastically since January of this year.

For example, homes in Vancouver on Connaught Drive which were selling for $3-4,000,000 a few years ago are now on the block for $10-15,000,000 (a client of mine recently turned down an offer on her home in this area at $15.8M.  The home was purchased for $6M!)

Correspondingly, homes which were $1-2,000,000 are now $4-5,000,000.
Even condominiums which were valued at a half a million dollars a last summer are now worth $800K to $1M.

Prices are rising so fast, one has to buy a property BEFORE putting one's own property up for sale, for fear of being priced out of the market!

Before the completion date occurred, another client of mine who bought a home in North Vancouver for $1.5M was offered $250,000 by the seller NOT to complete the purchase!

In my view, this lunacy is being fueled to a large extent by foreign money which is pouring into the Lower Mainland at an unprecedented rate and pulling the prices UPWARDS from the top end.

This inflow of money (Chinese principally, but there is also a lot of Iranian, Indian and American capital coming in, as there is still a very substantial discount on the Canadian dollar for those who deal in USD), is destabilizing the BC real estate market for everyone who lives and works here.

Tragically, the only people who can't seem to see this are the provincial and federal politicians and the many pundits who make a living commenting on things they t know nothing about (newspaper columnists, economists, business school profs and other so-called experts).
 
They remind me of the referees at a World Wrestling Entertainment match. Everyone in the stands is screaming that the bad guy has a concealed weapon and the only one in the building who can't see it is the referee!

However in the WWE the refs are paid to look clueless.

Our politicians are paid to govern in the interests of Canadian citizens, not foreign speculators -but looking at their behavior, one would never guess that.

While it is reported that foreign ownership may be as little as 3-5% of the housing stock that is more than enough to affect the entire market adversely -and it has done so in spades as few can now afford to own a house in Vancouver and even condominium ownership is becoming a stretch.

WHAT TO DO?
1. Make foreign buyers confirm the source of their funds
Right now any foreign buyers can wire any amount of money into  their lawyers' or notaries' trust accounts from any bank in the world to buy a property in BC with no questions asked.

Realtors and mortgage brokers are required to fill in a bunch of useless FINTRAC forms and obtain client identification documents, but NO ONE is asking where the money came from in the first place!

I have heard many stories from realtors of bidding wars where a property is listed at a certain price and then a half a dozen or more offers come in steadily bidding up the price by fifty or one hundred thousand dollar increments and then the final offer comes in at a half a million dollars over everybody else's!

A lawyer in our office recently had the same experience in BC Supreme court on a foreclosure sale.  The offer the court was asked to approve was $1.5M and a six or seven other buyers showed up at the hearing.  As is the court's practice, everyone  was advised of price of the original offer and given the opportunity to bid or re-bid in a sealed envelope.  The Master opened the sealed bids at $1,55M, $1.65M, $1.725M, $1.9M and the WINNER was $3.1M!

It would appear that the winner wanted to pay AS MUCH AS POSSIBLE. 

It has been our experience that much like locals, foreign buyers usually don't want to pay a penny more than is necessary to purchase a property here (much less an extra million dollars on a foreclosure purchase).

As most foreign buyers have local realtors who are well aware of the market prices, the only explanation which seems to make any sense is that some foreign purchasers are using the Canadian real estate system to launder their money.

Once a house is purchased in BC the seller has effectively washed it and it can be moved anywhere in the world easily by selling the property (as the seller then has the contract of sale and all the documents necessary from the lawyer's office to "prove" that his funds came from the legitimate sale of Canadian real estate). No foreign country will look past the most recent transaction to confirm the legitimacy of the funds.

In the criminal world, the fee to launder money can be 50% or more.  In Canada, it seems to be NIL.

I believe that many foreign buyers when confronted with a requirement to show where their funds came front would balk and refuse to complete the purchase.

Stemming the flow of dirty money into Canadian real estate would terminate a number of high end purchases, which may push down some of the prices at the $10M - $15M range which would in turn push down the medium high end prices and so on.

2. Increase taxes significantly on those who purchase property in Canada but do not live here or pay taxes here. 
It is commonplace for foreigner investors to park some of their money in Canada (as they do not trust their own governments).  They typically put the title of a property into the names of their wives or children (it is always interesting to look at the occupation listed on the titles to high end real estate like "worker," "student" or "home maker").  The wife and kids live in the property as their principal residence and pay no taxes as they have no income.

The father, who is a non-resident, continues to make money in a foreign state at a much lower tax rate.  Canada taxes income on the basis of RESIDENCY, so the father pays NO CANADIAN TAX.  The family enjoys the benefits of the Canadian health care system, school system etc. while paying nothing other than property taxes.

The misguided view of the premier of this province is that the above situation constitutes FOREIGN INVESTMENT IN BC, to be encouraged at every step.  
With all due respect, that is nonsense.  

As the BC government is perpetually short of money for every worthwhile endeavor (hospitals, schools, pubic housing, seniors, homeless shelters, transit, mental health, child poverty -the list is endless), it would seem obvious that one source of revenue which would be virtually unopposed by BC taxpayers would be to increase Property Transfer Tax and municipal property taxes on foreign buyers who are simply taking advantage of the laxity of the current legal and regulatory framework in BC.

An appropriate rate would be perhaps 20% Property Transfer Tax and triple current property taxes for those who choose to evade paying Canadian income tax (or pay only a token amount for appearance purposes) or simply leave their BC homes vacant.
A sale of a residence so occupied (or unoccupied as the case may be) should also attract income tax on any increase in value (not capital gains tax).  

A capital gains exemption for a principal residence should also be disallowed for such owners (these two changes would of course require an amendment to the Income Tax Act which is a federal statute).

These  even for so-called "legitimate" off-shore funds would also dampen foreign demand for Canadian real estate, however to the extent that it does not, then at least there is SOME benefit flowing back to the Canadian tax system.

Are these measures discriminatory?  Absolutely!  They discriminate against foreign buyers who are simply seeking to take advantage of the Canadian real estate system, while parking or washing their funds.

These changes should apply to ANY foreign buyer of any nationality (US, Europe, Britain and Australia included).

UBC already does this with foreign students who are required to pay much higher annual tuition than local students -and no one is complaining!

Will this "fix" the real estate affordability problem?  Maybe not, but you have to start somewhere and you might as well start with the most obvious cause.

Are either of these measures likely to come to come to pass?  I would not hold my breath.
​
Generally, by the time the government gets around to doing anything of consequence "the proverbial horses are already out of the barn and the farm has been sold off to a foreign syndicate." 

Better Call Saul Explains Money Laundering

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Residential Mortgage Debt as a % of GDP (Sep 2014 Source) Australia (AUS)  Debt 1.3 Trillion GDP 1.6 Trillion Debt/GDP 81% Canada (CAD) Debt 1.2 Trillion GDP 1.55 Trillion Debt/GDP 77%​ ​ U.S.A. (USD) Debt 11 Trillion GDP 16 Trillion Debt/GDP 69%

If it looks like Vancouver, it's probably San Francisco

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Trapped in Silicon Valley

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Savills' Thumbnail Real Estate Evaluation Shanghai, Moscow & Mumbai Potentially over-valued with weak or falling rents. London, Singapore, Hong Kong & Paris Fully valued, static prices or trending down.  New York & Sydney Becoming fully valued but still rising at slowing rates.  Tokyo Recovering, still trending modestly upward. Dubai & Rio de Janeiro Growing strongly but volatile.

Doctor Who "Gridlock" Scene 6

Left, Right or Down

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Deep and Persistent Wealth Inequality in Canada
Broadbent Institute September 2014

The Fading Redistributive Impact: Inequality and Poverty After four decades of relative stability, income inequality in Canada surged upward in the latter half of the 1990s. Between the mid-1990s and the mid-2000s, inequality increased more in Canada than in other OECD countries, and the redistributive impact of the tax-transfer system in Canada declined (OECD 2008, fig. 4.7). As we saw at the outset, by the mid-2000s, the redistributive impact of Canadian taxes and transfers was among the smallest among OECD countries (OECD 2011, 271).

The big surge in market income inequality began during the recession of the early 1980s and continued until the end of the 1990s. Rising market inequality reflects several distinct but powerful trends. Most attention has focused on the stunning rise in the proportion of income captured by the top 1 percent of income-earners, reflecting changing norms about compensation for the highly paid (Saez and Veal 2005; Fortin et al. 2012). The share of income captured by the top 1 percent is now approaching the levels reached in the “Gilded Age” of the 1920s and the Great Depression of the 1930s, generating an intense debate about the division between the rich and the rest, which was highlighted by the Occupy Movement in 2011. 

However, other trends have also mattered. One is the loss of solid middle-income jobs as a result of a combination of technological change, outsourcing, and declining unionization. According to one analysis, “the young and the poorly educated have borne the brunt of these forces, but significant numbers of those previously in the middle and lower middle of the occupational skill and wage distribution have also been adversely affected” (Fortin at al. 2012, 133). 

Finally, social changes have been important. Women and men increasingly choose spouses with similar educational levels, a process known as marital homogamy, or educational assortative mating. This trend tends to increase family income inequality as high-income earners increasingly marry each other and lower-income earners do likewise. Figure 1.1 captures the impact of these wider trends, demonstrating the strong rise in the real income of families at the 80th and 90th percentile, compared to the stagnation in the incomes of families in the middle and lower levels of the income distribution.
Read the whole Broadbent Institute study with charts here.

Bill Maher - Wealth Inequality in America

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A ranking like this is important, said WealthInsight Analyst Oliver Williams, "...because wealthy individuals, more than any other group, will change their home and even their domicile based on factors of ready access to wealth managers and private banks as well as political stability and heritage. Owning a piece of history in a city such as London is an aspiration for many, particularly wealthy individuals from overseas..."

Grace Kelly & Prince Rainier Attend A Gala Show 1955?