Market Intelligence - Q1 2024

Presented by

Terry Stockus

terry.stockus@theagencyre.com

250.588.7933

David Parry

david.parry@theagencyre.com

250.634.8356

1st Quarter 2024

STRONG START TO THE SPRING MARKET

A topic that is at the forefront of real estate news these past months is from the south of the border. In a landmark settlement of a sweeping class action lawsuit, the very concept of Buyer Agency is being challenged in the United states. Because of the Seller’s payment of commissions on the listing, the inability of a buyer to negotiate the commissions paid to their Buyer Agent was the crux of the law-suit. The argument was that this was tantamount to pricefixing and was anti-competitive. With the American National Association of Realtors (NAR) settling the lawsuit, many jurisdictions will no longer allow for the payment of a Buyer Agent’s commission through the MLS listing. What this means is that should a buyer wish representation by a realtor, they will need to pay the Buyer Agent directly, or a commission paid by the Seller will need to be negotiated during an offer. For most buyers, coming up with the additional funds to pay their agent is unrealistic. Those are funds that could and should go towards their down-payment. As a result, most will now either need to negotiate each contract or simply go without representation.

Here in Canada, a copycat class action has popped up out of Toronto, naming the Canadian equivalent of the NAR, the Canadian Real Estate Association

(CREA) as well as real estate boards across the country. Most in the industry feel this case has a much more up-hill battle compared to its US counterpart. Canada has far fewer examples of legal precedent and case law concerning anti-competitive business practices. Canada’s Federal Competition Bureau has heavily scrutinized organized real estate here, finding no wrongdoing. Such lawsuits take years to move through our court system. Regardless of the outcome, we cannot imagine an industry where an unrepresented buyer is the norm.

In another bid to tackle the British Columbia’s housing concerns and specifically what the province believes is rampant property speculation. The government has proposed a new anti-flipping tax. The government believes that flippers generate quick profits for investors and worsen housing affordability for residents by engaging in real estate transactions where they buy and sell properties within a two-year timeframe. This is the target of the new anti-flipping tax proposal.

Under the new regulations, individuals who purchase residential properties and then resell them within a specified period will be subject to additional taxation. The tax rate starts out at 20 per cent of income earned from a property sold within 365 days, falling to zero at 730 days when the tax no longer applies.The measure aims to deter speculative behaviour and stabilize housing markets by dis-incentivizing quick turnovers.

There is a small exemption if you live on the property as your primary residence and owned the property for less than 730 days. You may claim a deduction of up

to $20,000 from your taxable income if you owned the property for at least 365 consecutive days before you sold it and the property includes a housing unit that you lived in as your primary residence while you owned it.

In February, the Canadian government has extended the Prohibition on the Purchase of Residential Property by Non-Canadians Act until January 1st, 2027. The policy, which was initially instituted to increase the number of housing units available to Canadians for purchase, will now be in place for an additional two years. Of note, in 2021 foreign buyer purchases represented only 1.1% of real estate sales in British Columbia.

Under this extended policy, Canadian citizens and permanent residents are the only ones allowed to buy residential property. There are some situations where a non-Canadian can buy or receive residential property. Non-Canadians could purchase residential property in major population centres when a non-Canadian gains an interest in a residential property because of a divorce, separation, gift, or death, for example.

The Government of British Columbia also announced this quarter changes to the First Time Home Buyer and Newly Built Home Property Transfer Tax exemptions.

In British Columbia, buyers are required to pay the Property Transfer Tax (PTT) on most land transfers. However, there are specific exemptions to the PTT, such as for first-time buyers and those purchasing newly built homes. To be eligible for these exemptions, buyers and the property being transferred must meet certain criteria. Effective April 1, 2024, qualified first-time homebuyers can benefit from the first-time homebuyer

exemption if the fair market value of the purchase is $835,000 or less. This marks a welcomed increase from the previous limit of $500,000. This change can offer significant advantages to buyers, as the PTT on a home valued at $835,000 would amount to $14,700.

Starting from April 1, 2024, eligible buyers of newly constructed homes can now enjoy an exemption from the Property Transfer Tax (PTT) on properties valued up to $1,100,000, an increase from the prior cap of $750,000. Partial exemptions apply to new builds valued up to $1,150,000. Before seeking a PTT exemption, buyers must consider various other qualifying factors, including the location, size, and purpose of the property, as well as their residency status. It is advisable to engage with a real estate attorney early in the purchasing process to preempt any unexpected hurdles down the line.

Despite government initiatives, such as injecting an extra $99 million into the Canada Housing Benefit and implementing policies like the Prohibition on the Purchase of Residential Property by Non-Canadians Act of 2023, the housing market persists in its unchanged state. The severity of the crisis is underscored by record-low vacancy rates of 1.5% and an astonishing 8% average rent growth reported in 2023 by the Canadian Mortgage and Housing Corporation.

The Government’s newest effort to confront these obstacles is the implementation of the Canadian Renters Bill of Rights. This proposed legislation tackles critical issues encountered by Canadian renters. The Canadian Renters Bill of Rights aims to protect renters from

unjust “renovictions,” which involve landlords forcing tenants to leave because of extensive renovations.

Already, British Columbia’s Residential Tenancy Act includes similar protections, requiring that building permits be obtained before issuing eviction notices.

The Federal government will implement a nationwide standard lease agreement that requires landlords to disclose the rental price history. The Federal government underscores the significance of transparency, asserting that it will empower renters to negotiate equitably. This concept is intriguing, considering that landlords usually adjust rental rates to market norms when a tenancy concludes. If a longterm tenancy ends after several years, there could be a significant disparity between the previous rental rates and the current market rates. We are curious to see if this will have any effect on rent negotiations.

A $15 million fund will enhance accessibility to legal services for tenants, ensuring they receive sufficient support in resolving disputes. This is largely a moot point again in BC, as tenants already receive tremendous support from the Residential Tenancy Office through their arbitration process, which critics argue is biased against landlords. We would hazard that access to this legal fund is not available to the landlord…

Aligning renters with homeowners in credit assessment, timely rental payments will now contribute to an enhanced credit score, potentially facilitating easier access to mortgages. This Federal-level initiative is a commendable addition aimed at assisting renters in achieving the goal of homeownership.

These initiatives, crafted in cooperation with Canadian provinces and territories, are complemented by efforts to expedite the construction of new homes and strengthen social safety nets. Their collective goal is to enhance living standards, focusing on addressing the needs of the younger population.

The necessity of these measures becomes apparent when considering the substantial rise in Canadian renters, particularly among younger age groups. According to the 2021 Census, there has been a 22% surge in renters over the last decade, almost three times the rate of homeownership growth. Factors such as affordability challenges, demographic changes, and urban lifestyle preferences have all played roles in driving this trend, highlighting the need for strong renter protections.

The first quarter of real estate sales in Victoria, BC, reflects a market that is rapidly gaining momentum. With increased sales and listing numbers, optimism is re-surging among buyers and sellers alike. However, it’s crucial to recognize that despite governmental efforts, we cannot solely rely on taxation and regulation to address the housing crisis. Streamlining the development process is essential to achieving balance between supply and demand in the Victoria housing market. As we navigate the challenges ahead, it becomes increasingly clear that collaborative efforts between policymakers, developers, and communities are necessary to ensure sustainable and fair growth in the real estate sector.