Vancouver real estate vulnerable after tax on foreign buyers -Fitch

Mon Aug 22, 2016 4:18pm EDT
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By Leah Schnurr

OTTAWA Aug 22 (Reuters) - With a new tax on foreign homebuyers in Vancouver expected to slow purchase activity, there is a greater risk that the city's lofty real estate prices would be vulnerable to a potential jump in local unemployment, Fitch Ratings said on Monday.

Earlier this month, Vancouver implemented a 15 percent tax on foreign home buyers to try to address a lack of affordability for residents.

The new tax will likely be effective in tamping down buyer activity, Fitch analysts wrote, but with signs that the market may have begun to cool even before the tax, that leaves Vancouver home prices more exposed to potential changes in Canada's economy.

"We feel that the foreign investors have been propping up real estate in Vancouver, creating more demand, which is raising prices," said Susan Hosterman, director of U.S. structured finance at Fitch Ratings.

"With them potentially out of the picture, Vancouver is more susceptible to Canadian supply and demand behavior, which is mainly driven by employment."

While Vancouver's job growth has been strong, Hosterman said it was a question of how long that will last given lackluster job creation in other parts of the country.

Vancouver's unemployment rate was 5.4 percent in July, according to Statistics Canada, one of the lowest amongst Canada's major cities.

The foreign buyers tax was the latest effort by authorities to reign in the housing market in recent years. Last December, the new Liberal federal government introduced measures requiring those who want to buy more expensive homes to provide a bigger down payment.   Continued...