Rising interest rates, tightened lending and tax increases will pose a challenge to its years of rapid growth.<\/p>\n
Vancouver\u2019s real estate market has been electric for the past few years. Prices in the British Columbian city have been soaring since 2015, but tightened lending, higher interest rates across Canada, the city\u2019s new government and tax worries may dampen the mood.<\/p>\n
\u201cThe luxury market kind of exploded in the last decade,\u201d according to Romana King, who works with statistics and analytics at Zolo<\/a>, a national real estate marketplace in Canada. \u201cWe\u2019re now starting to see the decline of that.\u201d<\/p>\n Prices were down 4.6% to and average of C$1.3 million (US$1.07 million) compared to the month before, according to the Vancouver housing market report from Zolo, which updates data in real time. That\u2019s a 3.3% quarterly increase, but a 7.2% decrease from the previous year, as of June 4.<\/p>\n For the luxury market, the median price for a condo in Greater Vancouver was up 7% during the first four months of 2018, compared to the same time last year, according to a May report from the national brokerage Royal LePage. Prices for detached homes rose 5.2%, the report said.<\/p>\n \u201cHome prices in Canada\u2019s luxury real estate market have remained remarkably resilient when you consider the economic headwinds that serial government interventions have created,\u201d Phil Soper, president and CEO of Royal LePage, wrote in the report.<\/p>\n Housing stock in the Vancouver area ranges from multi-family developments to single-family homes. Yaletown is a walkable neighborhood with high-rise apartments for professionals and affluent young families, said Vancouver-based agent Leo Wilk of Leo Wilk Real Estate. The average home price there is C$1.3 million (US$1 million), according to Zolo. Lower Lonsdale, where the average price is C$1.15 million (US$889,000) is also an increasingly popular area, he added.<\/p>\n West Vancouver, where the average home price is C$2.3 million (US$1.78 million), is “arguably the priciest place to buy in Canada,” according to Ms. King. Many of the waterfront estates there are owned by Baby Boomers who have had homes there for decades, she said. Those who buy there now are “ultra- or ultra-high net worth” and often buy with the intention of tearing down the existing home and building new.<\/p>\n Current Climate<\/strong><\/p>\n Among the \u201cheadwinds\u201d facing the Vancouver real estate market is rising interest rates.<\/p>\n \u201cWe just came from a few years of record everything\u2014record sales, record prices, record time on the market,\u201d Mr. Wilk said. \u201cThat was from about 2015 to honestly about four weeks ago.\u201d<\/p>\n It was only about a month ago that he started noticing a drop-off in calls, even though rates have slowly been rising since 2017. The Bank of Canada has issued three interest rate hikes since last summer. The rate, now 1.25%, is still low, but it\u2019s likely to continue to rise, according to experts.<\/p>\n \u201cInterest rates are up and banks are tightening up lending,\u201d Mr. Wilk said. \u201cThat has slowed things down. Anytime you decrease buying power, buying decreases.\u201d<\/p>\n In addition, British Columbia\u2019s New Democratic Party, which took office last summer, proposed several expanded or new taxes in its 2018 budget, announced in February. That includes an increased foreign buyers tax, a \u201cspeculation tax,\u201d which is like a vacancy tax, and a levy on homes over C$3 million (US$2.32 million). Making housing more affordable for Canadians by discouraging foreign buyers is one of the main goals of the party\u2019s budget, government officials have said.<\/p>\n An influx of buyers from places like China and Russia have entered the market in recent years, Ms. King said. The foreign buyers tax of 15%, first established in 2016, was meant to discourage these buyers and help cool a market that was increasingly less affordable for locals.<\/p>\n In February, the government increased the foreign buyers tax to 20%. The area where the tax is levied was also expanded outside of metro Vancouver. Buyers who aren\u2019t Canadian citizens or permanent residents in British Columbia are subject to the one-time tax when purchasing real estate.<\/p>\n \u201cA lot of people were upset that Vancouver real estate had become a global asset,\u201d Ms. King said.<\/p>\n The increased tax did dampen the market at first, she said, but the impact was short lived.<\/p>\n \u201cWe saw a dramatic drop off; sales plummeted. But in the spring of 2017, sales were back up,\u201d Ms. King said, adding that it was one of the \u201chottest\u201d springs on record.<\/p>\n Mr. Wilk agreed that the tax didn\u2019t do what it was intended, saying that he doesn\u2019t see the added 5% having any more impact.<\/p>\n But that tax has made Vancouver less appealing in the eyes of the London-based real estate consulting group Knight Frank. The city has slipped several rungs in the company\u2019s Prime Global Cities Index over the last year.<\/p>\n Vancouver was ranked No. 10 on the index for the first-quarter of 2017. For the same time period in 2018, the city fell to No. 31 on the list, which ranks cities by the annual percentage change of its home prices. For the first quarter of 2018, that change was up .2%. In 2017, it rose 7.9%.<\/p>\n Challenges Ahead<\/strong><\/p>\n There are also several new taxes being considered in Vancouver, including a surcharge of an extra 0.2% on homes valued at more than C$3 million and 0.4% on homes over C$4 million (US$3.09 million). This increase for high-value homes, an expansion of the \u201cschool tax,\u201d is set to start in 2019, despite protests from locals.<\/p>\n There\u2019s also a \u201cspeculation tax\u201d being considered by the government; it will likely be put to the legislature in the fall, according to reports. If it passes, it will \u201cfunction much like a vacancy tax,\u201d according to Riley Burr, a partner at Norton Rose Fulbright in Canada.<\/p>\n The tax would affect homes that are not primary residences or long-term rental properties. The tax rate will be 0.5% for the 2018 tax year for \u201canyone who\u2019s not working here,\u201d Ms. King said, adding that that includes foreign buyers as well as Canadians from other provinces. \u201cIt\u2019s an annual tax for non-British Columbian tax payers.\u201d<\/p>\n In 2019, the rate would go up to 2% for non-Canadian residents, while Canadians from outside British Columbia who own property there will pay a 1% tax.<\/p>\n Despite policy changes and interest rate hikes, PricewaterhouseCoopers Canada reported when that Vancouver is the No. 1 market to watch in Canada for investment prospects, according to a survey by Conference Board of Canada. And the city\u2019s economy is forecast to grow 2.5% in 2018, it said.<\/p>\n For his part, Mr. Wilk admits it\u2019s a time of uncertainty, but he isn\u2019t panicking.<\/p>\n \u201cNo one knows where the market is going to go, but it doesn\u2019t seem to be getting crushed,\u201d he said. \u201cAnd even if it goes down some, it\u2019s still up from a few years ago.\u201d<\/p>\n