A new crackdown on overseas investors in British Columbia’s residential real estate could easily end up driving that money to other parts of the country, according to reports out Tuesday.

Citing concerns over affordability, BC slapped an additional 15% property tax transfer fee on all foreign investors, and entities representing them, for purchases in Metro Vancouver effective Aug. 2.

“With any tax change, there may be some unintended consequences. For one, the move may shift foreign attention to other markets in BC, such as Victoria, or elsewhere in Canada,” said Michael Dolega, a senior economist with Toronto-Dominion Bank, in a note released Tuesday. “Even prior to the new policy announcement, we believed that foreign investors had already begun to gravitate to the more affordable Toronto market. As such, prices in Toronto could see some significant upside pressure in the coming months as foreigners look to new markets.”

Dolega thinks the new rules, which include giving the city of Vancouver the power to tax owners of vacant property, should help cool the market.

“It is being implemented at a time when Vancouver’s resale housing market has already been showing significant signs of cooling. Existing home sales fell by 14% in the three months since March and the average home price has dipped 2%. In addition, new housing construction has responded to the pick-up in demand, and hit a record high in the first half of 2016. This additional supply was already poised to return the market closer to balanced territory,” said the economist, noting other jurisdictions like Australia, Singapore and Hong Kong have also implemented rules on foreign ownership and flipping.

Using some initial data from 19 days in June, the BC government has determined that 5% of investors in Metro Vancouver are foreign. Using an assumption the foreign share is in the range of five to 14%, Dolega predicts the new rules will reduce sales by 15 to 20 percent over the next 3 quarters and lead to decline in average prices of about five per per cent.

Meanwhile in Ontario, where prices are rising by about 16% annually in its largest city, finance minister Charles Sousa said he will look “very closely” at the new tax from his provincial counterparts.

Doug Porter, the chief economist with Bank of Montreal, has suggested Ontario look at a similar tax, especially given its fiscal position and the revenue the tax would generate.

“It comes down to who the potential buyers are,” said Porter, referring to whether those buyers will shift their purchases to Toronto from Vancouver. “Are they completely indifferent to where they are buying? I can’t believe they are all falling into that. I think the city actually matters. Over time there might be some spillover.”

Alyssa Furtado, chief executive of RateHub, said she can see some of the foreign investment trickling over to Toronto, but predicts that if it happens Ontario will see a similar tax.

“If we continue to see prices or rate of appreciation go up in Toronto, it has to be looked at as a lever,” said Furtado, adding that there are indications foreign ownership in the city may already be higher than some think.

Finn Poschmman, chief executive of the Atlantic Provinces Economic Council, said he expects there will continue to be a regional focus for investors, but says the tax is a loss for Vancouver and Canada.

“For people who are looking for a West Coast real estate investment, or a place to live or build a business in future, more money will flow to Seattle, Portland, San Francisco — or tiny Vancouver, Wash.,” he said. “What is unfortunate is that Vancouver, BC, will lose some of those people who would have invested in a place to live for a child attending school, with the intention of establishing permanent residency and a business.”

Vancouver realtors reacted with fury to the announcement, especially the short notice, and demanded transactions that are in the process of closing be exempt from the new tax.

“Housing affordability concerns all of us who live in the region. Implementing a new real estate tax, however, with just eight days’ notice and no consultation with the professionals who serve home buyers and sellers every day needlessly injects uncertainty into the market,” said Dan Morrison, president of the Real Estate Board of Greater Vancouver.

BC’s 15% Tax on Foreign Homebuyers Could Drive Money to Other Parts of Canada by Garry Marr | Financial Post