Okanagan developers claim BC speculation tax hampering their market
The Predator Ridge golf course and residences in Vernon, B.C. The massive, multi-phase community is feeling the impact of the provinces proposed speculation tax, even though it’s exempt from it.
Kelowna developers say that B.C.s proposed speculation tax is already hitting their market hard and turning off the important Albertan recreational-property buyer. Theyve formed a coalition with other jurisdictions against the tax, claiming it will impact them far harder than it will those in the Lower Mainland, where speculation has had a direct effect on housing affordability.
The dampening effect, they say, is particularly grating because the Kelowna market was just starting to take off again after years of decline.
Its considered Kelowna is the epicentre of the fight against the speculation tax, Kelowna Urban Development Institute chairman Kevin Edgecombe said.
Its because Kelowna has tons of people from Alberta who spend time here, and they bring huge tax revenue, but more importantly, they are also spending money in our community all year long – not just in the summer. We are very, very tourist-dependent, and we feel strongly that we have been unfairly pulled in to the Vancouver/Lower Mainland market. The developers in Vancouver, they dont have the same level of disdain for this speculation tax that we do. They dont like it, but they dont think it will affect them like its affecting us. I know countless projects that have been either postponed or cancelled.
The tax, which is expected to become law some time in October, applies to urban areas including Metro Vancouver, the Capital Regional District (excluding the Gulf Islands), Kelowna, West Kelowna, Nanaimo, Abbotsford, Chilliwack and Mission. It affects homeowners in those regions who leave their properties empty for six months of the year, but does not apply to homes valued at less than $400,000. On top of the usual property tax, the speculation-tax rate for British Columbians, if it applies, is 0.5 per cent of property value, while Canadians from other provinces will pay 1 per cent.
Kelowna industry representatives are feeling unfairly penalized because they say the Lower Mainlands housing crisis doesnt apply to them. Because the region is traditionally a Liberal stronghold, theyre feeling that, politically, their situation might be hopeless.
Thats my renegade view, said Mr. Edgecombe, who says hes been working relentlessly on the issue. We are falling on deaf ears in a lot of ways, he said, although he also concedes there is a good chance that we might see a compromise position taken by the government, and that would be a good thing.
I believe this tax is a form of domestic piracy. Thats a bit bold of me, but frankly, you are penalizing fellow Canadians … and many are cash-poor and property-rich, because they bought 25 years ago a piece of land in Kelowna that has obviously grown in value. And in many cases, the tax will exceed their annual income if they are retired people.
At the UDI, we dont have any issue with a true speculation tax – if someone buys 10 units and sells nine of the contracts a week before a condo building finishes, we believe they should be taxed for that, because thats true speculation.
A website called Scrap the Speculation Tax includes a coalition of developers, chambers of commerce, real estate boards and home builders associations from Vancouver Island and the B.C. Interior. However, Kelowna stands out because a significant share of their market is people from Alberta, Saskatchewan and other provinces, by buyers attracted to the climate. Many of them keep vacation properties in the Kelowna region, and many ultimately retire there. Critics of the tax argue that long-term homeowners are not speculators. For example, the long-time owner of a secondary lakefront property now worth $2-million or $3-million is now looking at an annual tax that they hadnt counted on when they purchased many years ago, which makes it more of a wealth tax than a speculation tax, they argue.
West Kelowna Mayor Doug Findlater wrote a letter to Premier John Horgan, asking his city be made exempt from the tax, citing concerns the 10-year-old municipality hasnt got the tax reserves to cover infrastructure costs.
The city relies on development cost charges and residential growth to keep our yearly property tax increase at an affordable level, Mr. Findlater wrote in the letter, dated June 21.
As a result of the tax, out-of-province buyers, developers say, are selling off their properties and new buyers are opting to buy elsewhere. A major luxury waterfront development such as McKinley Beach is directly affected, says Andrew Gaucher, vice-president of sales.
He says sales had already been declining since oil prices slumped and hes still selling to Albertans who are purchasing to live in the homes. But its the buyers who were going to hold the homes as recreational properties until retiring down the road who have gone away.
A Predator Ridge developer says 35 per cent of the projects buyers are from Alberta, angry at B.C. and worried that the tax could expand into Vernon.
Justin OConnor, president of the Canadian Home Builders Association for the Central Okanagan, says buyers from the Lower Mainland help offset some of the Albertan loss; however, the Okanagan is in the unique position of being more dependent on tourism than other urban areas. Lower Mainland buyers account for about 20 per cent of the Kelowna market, he says. And while everybody is still busy, the effects of the tax will be felt in a couple of years.
I have talked to prominent builders and the contracts they are signing now, going forward, are down over 30 per cent for single family residential, and that is a big part of their business. We are going to feel that, said Mr. OConnor, who is also senior vice-president of sales for Sothebys in Kelowna.
It doesnt make any sense at all, because our buyers are not speculating. The people they are hitting are people who bought here years ago and contribute to the economy. This tax isnt getting the true speculators. Its punitive – they are punishing Canadians.
Because developer Randy Trapp has projects well outside the new taxation areas, hes seeing an uptick in business from Albertans. Mr. Trapp has a townhouse resort community in B.C.s Radium Hot Springs, near Banff, and another on Vancouver Island, in Parksville. Parksville and Qualicum were exempted from the tax shortly after it was announced, but Nanaimo-Lantzville still faces the tax because of increased property prices and a low rental-vacancy rate. Hes enjoying the benefit of buyers who are seeking locations where the tax does not apply.
I will tell you, quite frankly, that a good portion of our new business this year is coming from people who were looking for a second home in areas like the Okanagan or the southern tip of Vancouver Island, and now they are looking in areas not subject to the tax, said Mr. Trapp, president of Luxury Resorts West. My only fear right now is I wont be able to build them fast enough.
Mr. Trapp says the tax needs a rethink, however. He says it would have been more effective to charge a hefty tax on homes held for short periods of time, thereby catching true speculators who are driving up prices.
Gail Temple is an Edmonton developer who spends half her time in Kelowna, where her company, Westcorp, is building a 33-storey tower. The residential tower was approved by city council the same day as the tax was announced. Ms. Temple, who is vice-president of operations, says the project sales were postponed until the spring because of the tax.
Our information that came back was that people were not willing to step forward at that time, she said. Its put a bad taste in everybodys mouth.
Its hard for us to believe that its even happening, because we just dont think its very democratic, and we also dont think its going to provide affordable housing, if thats the intention.
What weve done right now with speculation tax, and with all the speculation around it, is weve essentially slowed things down.
Brad Pelletier, senior vice-president of Wesbild Okanagan, says the massive, multiphase community of Predator Ridge, in Vernon, is feeling the impact of the tax even though its exempt from it. Since development started in 2000, it is more than a third of the way through the 2,100 homes its zoned for. Mr. Pelletier says 35 per cent of his market is from Albertans. Those buyers are now angry at B.C. and worried the tax could expand into Vernon, which has meant sales have dropped.
We have always had lots of activity, and we didnt even have a prospect or a deal out of Alberta until I would say June of this year – they just disappeared, Mr. Pelletier said. Its still less than half the activity we would generate out of Alberta.
Its too bad. The impacts of the coast are so different than here, where weve really alienated our good friends and neighbours. This is not a matter of foreign investors.
An additional 1 per cent on top of all the other carrying costs is significant, he says. That amount represents a glorious rental instead of having to own a place.
If they dont win their battle to scrap the tax, Mr. Pelletier said his company will have to aggressively market the project as being outside the taxation area.
Its not all doom and gloom, at least not for the presale market. Its the presale market that has attracted a lot of speculation in Vancouver. Randy Shier, president of Mission Group, expects his new Brooklyn condo project in downtown Kelowna to do well. And he rarely sees people flipping his units, he says.
We have over 4,000 registrants for 178 homes, so even though the market is down, we are going to do well there, Mr. Shier said. We start selling in early September. Right now, we are previewing. And many of our registrants – which was the same with our other [Kelowna] building Ella – many are from Vancouver.
A lot of the upset over the tax is due to the fact that Kelownas enjoyed a rebound in sales in the past couple of years. Sales arent as low as they were three years ago, but theyve definitely dropped since 2017, he notes. Mr. Shier also says its essentially a vacancy tax.
The number of active listings has increased by 36 per cent in the Okanagan while total sales year to date are down 19 per cent, he says. When the tax was announced, he says his Edmonton neighbours put their home on the market immediately and decided to buy in Arizona instead.