British Columbia’s measures to cool off North America’s hottest real estate market are starting to have the desired effect.

Early data from the Real Estate Board of Greater Vancouver suggest the 15 percent foreign buyer’s tax, which was unveiled July 25 and took effect Aug. 2, may be curbing sales and limiting price gains, adding to a slowdown that started in May amid concern a housing bubble was forming in Canada’s third-biggest city.

Home sales in the Pacific Coast city fell 51% to 758 transactions in the first two weeks of August from the same period a year earlier, with detached properties bearing the brunt of the pain, falling 66%. The data is preliminary and may change by the end of the month, according to the board. In the final week of July, after the tax was announced, there were only 572 sales, a 35% slide from a year earlier, the board said.

“Tailed off”

“Our concern with this tax is that the market’s already tailed off starting in the spring,” said Barry Allen, chief executive officer of Zolo, a brokerage that compiles multiple-listing data. “Housing was getting too expensive for people to sell, not to buy. Because they’re saying ‘I’ll only sell if I know where I’m going’ and they couldn’t afford what was out there.”

National Bank Financial, which analyzed the real estate board’s data, says the detached-home market started to cool after May, which saw a record 4,769 sales for that month. Transactions in the 12 months to July fell 4.5% from May, to 17,913 deals.

At the same time listings, which had been rising steadily since January, hit 26,048 in the 12 months to July, the highest in at least three years. As supply overtook demand, the price growth of the average detached home also slowed, slipping 3.4% from January to July to $1.76 million, the real estate board said.

“Neighborhoods with more expensive homes suffered more significant declines in purchase activity,” Peter Routledge, an analyst at National Bank in Toronto, said in an Aug. 7 note to clients. “Even prior to the foreign-buyer tax change, we found early evidence of cooling demand” in areas preferred by foreign buyers. “Weakening demand has translated into weakening home valuations across Vancouver.”

When announcing the foreign tax, British Columbia Finance Minister Michael de Jong also said he would allow Vancouver’s municipal government to tax empty homes, some of which may have been bought by foreigners as investments.

Neighborhoods with more expensive homes suffered more significant declines in purchase activity.

Officials from the federal, provincial and municipal governments are taking part in a housing round table, established in June, to address concerns about the elevated Toronto and Vancouver housing markets and provide policy suggestions. Prime Minister Justin Trudeau has met with local experts and market players including developers, credit unions and non-profit housing groups in Vancouver.

Even with the slowdown, the British Columbia Real Estate Association forecasts the province to post a record 113,000 sales this year, up 10% from 2015, led by the lower mainland that includes Vancouver. Next year, activity is set to moderate to 104,400 transactions, which would still be the second-highest level since 2007, the association said in a report Thursday. Supply will begin to trickle into the market, with 41,300 housing starts in the province this year, the highest since 1993.

“The introduction of a 15% tax on foreign national home buyers in Metro Vancouver is expected to accelerate a moderating trend in the market that began earlier in the year,” said Cameron Muir, chief economist for the board. “However, other regions of the province are performing above expectations and at the provincial level, largely offsetting Metro Vancouver’s deceleration.”

Vancouver prices will rise 14% this year from 2015 to an average $1.03 million. Price gains will slow to 5.8% next year, according to the agency group that represents 20,000 realtors in the province.

Vancouver Foreign Tax Slowing an Already Cooling Home Market by Katia Dmitrieva | Bloomberg News | Financial Post