Vancouver has unveiled an Empty Home Tax on owners of vacant units.
The measure will take effect from next year as part of efforts to ease skyrocketing home prices in the city.
As the third largest city in Canada, Vancouver has always been a top destination for Chinese immigrants.
The city’s average home price soared 32.6 percent in the first half of this year, according to data from Canadian Real Estate Association.
That has far exceeded the average growth of 14.3 percent nationwide.
In a bid to cool the property market, British Columbia introduced a 15 percent property transfer tax on foreign real estate buyers in Vancouver in July. However, the move has yet to have any substantial impact.
Local residents blame Chinese home buyers for making the city one of least affordable in the nation. Thus, the local government is under mounting pressure to do something about the situation.
In Hong Kong, authorities have not considered imposing a similar tax on unoccupied residential units as such a levy is widely believed to be harsh.
However, if you study the details of the tax measure, you may find that such a move is not as harsh as it seems.
For example, the tax will only be levied on units that do not serve as a principal residence of the owner and are empty for more than six months a year.
Data shows that the home vacancy rate in Vancouver is only 4.8 percent, which is relatively low based on global standards.
Also, home owners are able to use various reasons to apply for an exemption. For example, they can claim the need to keep two homes for work or study purposes, or for retirement.
The annual tax rate is only 1 percent, which is quite affordable for investors who can reap 20 to 30 percent annual gain.
The tax will rely on homeowners to declare their vacant properties, with random audits by the city to ensure compliance.
Those caught skirting the tax will be fined: from a 5 percent penalty for those who are late in paying the tax to a fine of C$10,000 (US$7,401) a day for false declaration.
The government estimates that the new tax would generate around C$2 million in tax revenue, which is not even enough to buy a decent apartment in the city.
It knows quite well that surging home prices resulted from the influx of foreign immigrants, rather than the high vacancy rate.
The empty-home tax is more of a political gesture. The move is aimed at bolstering the city’s meager supply of rental stock.
This article appeared in the Hong Kong Economic Journal on Nov. 24.
Translation by Julie Zhu
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