News

It hasn’t even been two years since the first Foreign Buyers Tax was implemented in Vancouver on August 1^st 2016. To increase their chances of being re-elected, the Liberal party led by then Premier Christie Clark decided to implement drastic real estate policies to tackle the increasing popular issue of housing affordability. The major policy announced was a 15% Foreign Buyers Tax on buyers who are non-Canadian citizens or Canadian residents for properties in the Greater Vancouver Regional District. The tax led to a short-lived cooling period in Vancouver’s red-hot property market. Roughly 9 months after the tax’s implementation, property prices returned to pre-tax highs and a boom was experienced in the condominium market. Toronto was quick to follow and implemented their own Non-Resident Speculation Tax, the outcomes of which have followed the same path as Vancouver’s Foreign Buyers Tax.

In February, the newly-elected NDP government of British Columbia released their provincial budget which includes very extreme real estate policies. Their aim is to implement measures to decrease property values while investing more in public housing. Below are the major real estate policy changes to take note according to the Urban Development Institute – Pacific Region[1].

New Speculation Tax 

• Beginning fall 2018, the Province will introduce a new speculation tax on residential property.
• Annual property tax will target foreign and domestic speculators who do not pay income tax in B.C.
• The Tax rate will be 0.5% of taxable assessed value for the 2018 tax year and 2 per cent thereafter.
• The tax will apply to Metro Vancouver, Fraser Valley, Nanaimo and Greater Victoria area, and the municipalities of Kelowna and West Kelowna.
• Primary residences and long-term rentals will generally be exempt; however, second homes and recreational properties in the selected areas will be applicable.

Increased and Expanded Foreign Buyers’ Tax (FBT)

• Beginning February 21^st , 2018, the FBT tax rate will increase from 15% to 20%, and be expanded to include Fraser Valley, Nanaimo, Capital Regional District and Central Okanagan Regional Districts.
• Within Metro Vancouver the FBT increase will be effective February 21st with no grandfathering provisions for existing contracts.
• In the new regions, there will be a three-month grandfathering provision for existing contracts.

Increased Taxes on Homes Valued Over $3 million

• Increased Property Transfer Tax rate from 3% to 5% on the value of homes over $3 million, forecasted to raise $81 million annually.
• Increasing school tax rate on the value of homes over $3 million

Tax Compliance and Enforcement

• Legislative changes to require developers to collect and report comprehensive information about pre-sales assignments.
• Require additional information on beneficial ownership on the property tax form and establish a registry of beneficial ownership in B.C. that will be publicly available.

[1]http://udi.bc.ca/wp-content/uploads/2018/02/UDI-media-statement-on-2018-B.C.-Budget-announcement3.pdf

Introduction

We previously recommended that families create a written list identifying, and noting key details of, their financial and personal assets. The importance of this in support of drafting a Will or for broad estate planning purposes was emphasized.

Ensuring that testamentary objectives are met can be especially challenging for families with multi-jurisdictional estates.

Jurisdictions apply different connecting factors such as domicile, residence, or nationality to determine which jurisdiction’s laws will apply for succession matters, sometimes leading to complex conflicts of law. Issues such as mental capacity and the validity of substantive aspects of Wills are treated differently across countries (particularly as between common law and civil law countries).

In 2015, most EU countries adopted a set of regulations, known as the EU Succession Regulations, that reduce complications for cross-border succession planning and administration.

Note that the intention was not to harmonize succession and inheritance laws across the EU. The Regulations are intended to reduce conflicts between the laws potentially applying to cross-border estates, including applicable law, jurisdiction of courts, enforcement of decisions and presentation of instruments in succession matters.

Where a client has a multi-jurisdictional estate, including ties to an EU country (e.g., being a citizen or resident or owning assets located there), then the Regulations will impact succession planning.

The Regulations apply to the estates of people dying after August 17, 2015.

Where an estate falls entirely within a person’s country of residence and nationality, then little changes. In addition, the Regulations do not apply to revenue, customs or administrative matters, including questions relating to matrimonial property regimes, legal capacity, maintenance obligations or property rights other than those arising by reason of death, trusts or company matters.

The Succession Regulations and Impact

The default position set out in the Regulations is that the law of the Member State where the deceased had her last habitual residence has jurisdiction with regard to her entire estate.  The inheritance laws of that country would be applicable to the estate.  This includes both succession and administration issues.

Habitual residence is not necessarily the same as the last domicile or even residence prior to death.  It involves an assessment of the “life circumstances” of the deceased up to and including the time of death.  Where her life was centered, including her most important social contacts, are be considered.

This default position can also be overridden in a number of circumstances – most importantly, if the testator elects the laws of her nationality to apply to the whole estate, by evidencing in writing, the election to exercise a “choice of law”.

Note: some advisors question whether an estate containing multiple wills can make this election with respect to less than the entire estate.

This choice of law would be helpful where a testator has a strong preference for a particular set of national laws or where there is any uncertainty with respect to habitual residence.

The Regulations determine the set of laws that apply to succession issues, but does not determine which courts can be involved. The courts of the Member State where the deceased was habitually resident at the time of death or in which property is located would retain the jurisdiction to rule on succession matters, but they would apply the national laws set out under the choice of law election.

Where a Member State is elected as the choice of law, then the parties can agree that the courts of that country will have exclusive jurisdiction to rule on all succession matters.

While not a requirement, the parties can apply for a Certificate of Succession that will be recognized in each Member State (and probably Switzerland and perhaps other countries).

Impact on Clients that are Not Resident in the EU

It is only EU Member States that are bound by the Regulations, but there are two ways in which nationals or residents of non-Member States could be impacted.

If the connecting factors of a country’s Private International laws would link a person’s assets back to laws of the EU country, then these Regulations will apply.

If you have property in an EU country, or have dual citizenship including of an EU country, then the Regulations are relevant, especially if you have concerns about particular local laws – e.g., those dealing with forced heirship.

Example

Historically, a Canadian national habitually resident in France, and owning real property in both France and Canada, would have had French law apply to the personal property and real property located in France, and Canadian law to the real property located in Canada.

Now, that person could elect to have Canadian law apply to the entire estate, which would require French courts to apply Canadian succession laws to the French real property.

Under the Regulations, if that person died without having made an election, then French law, including forced heirship rules, would apply to the entire estate, including the Canadian real property.   [However, it is questionable whether Canadian courts would give up jurisdiction with respect to the Canadian real property.]

It is not yet clear that all EU countries will accept an election to a national law that does not provide for forced heirship rights. However, court references to date suggest that they would only apply local laws in exceptional circumstances, after looking at the practical consequences of the proposed succession.

Disclaimer: The above is intended as commentary only, and should not be interpreted as advice for any particular circumstances. The Regulations are complicated, and the way that they interact with domestic laws impacting, inter alia, estate, succession, marital property and tax issues remain uncertain and certainly not without risk and complexity.  The commentary above is brief and has not dealt with many relevant issues or nuances addressed in our internal memorandum.

2017 is already well-known to be a complicated year for both winemakers and vineyard owners. As mentioned in our July update, there were severe frosts in many wine regions earlier in the year.  The implications are uneven ripening and in many cases a total loss of this year’s crop.

Heterogeneous is a good adjective to describe this vintage. Despite the severe conditions, many top estates located along the Gironde estuary escaped the frost and were able to bring their crops to full maturity. Whereas on the right bank, the situation looks bleaker for most properties except those located on the hill tops.  Poor weather in September further complicated the vintage for many producers.  Undoubtedly, the small harvest will have an impact on prices and may help to clear existing inventory.  This will become clearer during the spring en primeur campaign.

The weakness of the pound, due to Brexit and related uncertainties, is a dominant theme when assessing the fine wine market. The fine wine merchants in the secondary market are predominately London-based and the market is traded in sterling. Whether we look at the Liv-ex 1000 or the Liv-ex 100, the recent returns in sterling are attractive, but have been less so in USD or Euros.

Vintage wine market indices should be viewed as mere guidelines and comparing them with major equity indices such as the FTSE 100 or S&P 500 or gold is tenuous at best. While there has been a very long trading history over the past centuries between Bordeaux and London and more recently between other wine producing regions of France and London, the French may turn to Americans, Russians or Chinese in the future, so a weak sterling will become less of an issue.

In any case, no one should be collecting vintage wine if they may have to depend on it as a near-term financial asset. It should provide pleasure either through future consumption or the passion of collecting a living, dynamic natural product – which leads us to the auction market.

So far this year, all the top auction houses have seen their sales increase, led by the UK and US auction markets. As usual, top wines such as Lafite, Petrus and Domaine de la Romanée Conti (DRC) have attracted strong interest.   Of note is that offers from single-owner collections with impeccable provenance have become a major focus.  Speaking after their recent wine auction in Hong Kong, Jamie Ritchie, Sotheby’s worldwide head of wine, commented, “The outstanding result of today’s FUX ¹ sale (HKD29.5M / USD3.8M) shows that buyers truly value the provenance of single-owner wine collections that have impeccable condition, especially when they have an interesting story behind them.”

In our last update we noted that COFCO, China’s largest foodstuffs conglomerate, entered into a joint venture with wine writer and critic, James Suckling.  COFCO Wine & Wine, the importing arm of COFCO, has built a broad distribution network of 400 outlets across 27 Chinese provinces.

Wine & Spirit Education Trust (WSET), the largest global provider of wine and spirits qualifications, released figures that showed mainland China had more participants than the U.S.  WSET opened its first international office in Hong Kong this year.

These trends suggest that in the coming years there will be more people interested in consuming wine and as they become older and more affluent, they will undoubtedly wish to consume better and more expensive wines.

Fine wine is of limited supply while poor harvests such as with the 2017 vintage further abate the supply, which, coupled with the increase in demand, will ultimately lead to higher prices.

¹ FUX is an award-winning contemporary restaurant in Lech, Austria, founded in 1998, boasting a wine list of 4,000 different wines with over 55,000 bottles, and which was awarded the best wine list in Austria (2015) by Falstaff magazine.

ChapmanCraig’s Diversified Global Portfolios Are Core Investments For Wealthy Asian Clients 

Asia-Pacific is home to the largest population of high-net worth individuals (HNWI) in the world. With HNWI wealth in the region expected to surpass US$42 trillion by 2025, Hong Kong-based ChapmanCraig is prepared to meet Asia-Pacific’s growing demand for wealth management services – bringing expertise developed over its 25 years of helping wealthy clients meet their financial objectives.

Combining the investment resources typical of a global private bank with the personal attention of a local boutique, the independent, employee-owned wealth management firm has been managing client investment portfolios since 1995.

Affluent families seeking to pass on their wealth to future generations, busy high-level professionals and entrepreneurs without the time to look after their finances, and retired corporate executives in their golden years choose ChapmanCraig’s advice. This includes building portfolios that are broadly diversified across industries and geographies – to secure their wealth and deliver long-term capital appreciation.

“It’s important to have global exposure in today’s markets. Part of our dynamic and holistic approach is through industry-centric global diversification,” says managing director Craig Chapman. “We’ve had a very solid investment performance over the years, and we provide total transparency in the way we operate and report.”

Licensed and regulated by Hong Kong’s Securities and Futures Commission, ChapmanCraig works with prominent financial institutions, each with a strong capital base – including its Montreal-based portfolio manager Letko, Brosseau and Associates, and custody banks Royal Bank of Canada and Scotiabank.

The portfolios of the world’s wealthiest are comprised primarily of equities, bonds, and real estate. ChapmanCraig’s expertise covers all these asset classes.

“Asians are becoming wealthier and more globally aware. Their risk levels are changing – from making very speculative investments to more secure investments,” Chapman says. “So much of this industry is transaction-related, but what we do isn’t. We provide attractive long-term returns not just through well-diversified portfolios at appropriate valuations, but also by forming valuable, long-term partnerships that work in our clients’ best interests.”

-S7 Canada Business Report, SCMP. Friday, November 10, 2017

Start Thinking About An Estate Plan

It is not uncommon for an entrepreneur or business executive, despite a laser-like focus on business affairs and investment strategies, to continuously procrastinate when it comes to freshening (or creating) his or her Will.

I am not sure if this tendency is any worse in Hong Kong than elsewhere. But if it is, then it may be because Hong Kong has a relatively benign tax environment.  Significant potential inheritance or estate taxes tend to focus the mind (e.g., in the U.K. and the United States).

Nearly everyone “knows” that they should prepare a Will. Many do.  And that is a good start, so long as the Will is well-drafted and somewhat current.

For families with considerable wealth, particularly with assets spread across many jurisdictions, limiting considerations to a Will may be misguided. However, a commitment to seek professional advice with respect to a Will may be the catalyst for a broader review of estate planning issues and options. [i]

For example, we believe that a key process for every family, whether they have or are preparing an estate plan, is to maintain a detailed ledger of their financial assets and personal property and secure that list with a trusted family member and/or advisor.   This list should detail the custody entity, account number(s), relationship manager or other contact person(s), authorized signatories and ownership structure.

Not every professional advisor with whom the family deals will need access to this list; but it will certainly be essential when designing an effective estate plan and the role that a Will would play.

It will also be very important in the case of an unexpected death. Many executors have endured something akin to “well of course, there is also the Swiss bank account, but I have forgotten which bank and in what town. My husband handled that…”. Off-shore banks tend not to spend resources chasing the heirs of inactive accounts.

Professional advice leading towards a comprehensive estate plan has an importance beyond ensuring your assets are correctly and efficiently devolved. Potential issues cover broad terrain and are specific to each family’s composition, the state of inter-family relationships, assets, succession objectives, risk aversion and desire for privacy.

Beyond the considerations that normally jump to mind, issues may also include:

• managing gift, estate or inheritance taxes in those jurisdictions in which assets (especially real property) are located, including ensuring that potential exemptions are exploited[ii];
• highlighting non-compliant legacy accounts or structures, at a time when a fix may be dramatically easier and less costly – rather than dropping a tax bomb into your heirs’ laps;
• managing the potential impact of specific local laws where certain assets are located[iii], including forced heirship regimes and potential enforcement against local heirs (particularly, if the property going to that heir is neither income producing nor easily divisible);
• considering trust arrangements, where appropriate, for dealing with potentially difficult or expensive probate processes in multiple jurisdictions, as well as tax planning, asset protection, continuity of management, and other succession issues;
• considering a situs Will for real property located in jurisdictions that might present thorny issues;
• considering structures to hold off-shore real property, particularly within jurisdictions imposing significant capital gains taxes on dispositions (ideally considered at the time of purchase, but perhaps amendments can be made without material additional costs);
• dealing with certain responsibilities that you consider moral obligations, but that might not be reflected in your current Will; and,
• considering how best to protect your assets, your legacy and your heirs against eventualities for which they might be unaware or unprepared.

And of course, ensuring peace of mind the next time you reflect upon mortality or someone’s unexpected demise.

Even where a complicated estate plan is not required, a geographically dispersed family or a family with a dispersed estate, that is relying on Wills to devolve property may endure complicated and uncertain jurisdictional issues at probate. Common law courts will generally honour a testator’s choice of forum so long a connection threshold is met.  Civil law courts often have less administrative freedom.

Your professional advisor will help you consider whether you should have more than one Will.

When a single, multi-jurisdictional Will is probated, ancillary processes in other jurisdictions may need to wait until the initial probate process is complete. This could add considerable time, inconvenience and expense.  A situs Will can be tailored to the laws of a particular jurisdiction, extracting the property located in that jurisdiction from the remaining estate, for purposes that include simplifying probate.

Separate Wills might also be helpful for families that highly value privacy, because probate processes in different jurisdictions can result in very different levels of public disclosure.

Most families and non-specialist advisors are not competent to properly consider these and related issues. Specialist advice should be sought, and may save you many times its initial cost over time.  But in the meantime, you should sit down and prepare your List.

[i]  An integrated estate plan will not necessarily be centered around Wills.  But one or more Wills will likely play an important part, because even where trust arrangements dominate the estate plan, there will remain personal assets held outside of these trust arrangements.

[ii]  For example, securities issued by U.S. companies can be subject to U.S. estate tax even when held by non-resident aliens, and non-U.S. banks are seeking clearances more often due to heightened awareness of the heat that the IRS can bring.  There are easy fixes, primarily avoiding individual ownership, but this requires basic planning.

[iii]  For real property held in Europe, the difficulties for non-resident buyers presented by forced heirship rules were reduced considerably in August 2015 with the introduction of EU regulations (known as the EU Succession Regulation). However, certain prior elections must be considered and evidenced.

Any thoughtful understanding of the vintage wine domain begins in the vineyard, on the vines themselves.  Recent severe frosts in many areas of Bordeaux have all but destroyed the entire, or at best, the vast majority of the productions of numerous properties.  This is disheartening and in some cases, devastating to the chateaux.  How it affects the vintage wine trade and market in the months and years ahead will come to light only gradually.

While the 2017 vintage is just entering the flowering stage, the 2016 vintage is much feted as being high quality and having good volumes.  As managers of vintage wine collections, it is important for us to look several years ahead when making buying decisions today.   We also have to understand the current market dynamics when collectors look to sell some of their collections.   Strategy is driven by a number of factors: general trends in the wine trade; the en primeur market for both just-released and recent vintages; the auction market as well as developments which directly impact current and future demand.   We believe a longer-term strategy, based on fundamental issues, has a greater weight than shorter-term tactical decisions.

The steady price increases in 2016 and the first part of 2017 convinced us that the price increases have been supported by stronger volumes.  It does not seem to be a speculative market, but rather one that is consolidating after the recent shocks brought by significant pound weakness following the Brexit vote as well as four years of weak prices and low volumes.  Not surprisingly, Bordeaux continues to command most attention, making up between 55-75% of traded volumes, with Burgundy at 10-17% and Champagne at 3-11%, depending on the trading platform.

Although we rarely buy en primeur, we do follow each year’s campaign closely, to better understand the strategic implication of other vintages that are approaching drinking maturity and which we expect will exceed expectations.

The dynamics of the traditional French distribution system that uses courtiers, Bordeaux-based negociants and international distributors is changing due to new internet-based trading platforms and global economic trends and developments.  Last year’s Brexit vote and the subsequent weakening of the pound resulted in a market where profits were made in sterling terms but losses incurred in USD or Euro terms.  This will complicate this year’s en primeur campaign since even small increases in Euro prices, where the producers are based, will translate into large increases in the UK-based wine trade, which trades in sterling.   It is just a matter of time before this sterling shock works its way through vintage wine pricing.

Results from 2016 and more recent auctions, such as Christie’s Hong Kong Week on May 26 and 27 and the Hart Davis Hart in Chicago in early April, indicate that demand is solid with Asian buyers accounting for a large portion of sales.  The stars of the auction world remain the usual names – Petrus, Bordeaux first-growths and of course Domaine de la Romanée Conti.

In June 2016, Le Monde had a full-page article highlighting how high-profile Chinese, such as Alibaba founder Jack Ma and movie star Zhao Wei, have been buying not only Bordeaux wine properties but also distribution companies.  It was recently announced that wine writer and critic, James Suckling, established a joint venture with China’s COFCO which will increase fine wine exposure to the growing wine-drinking population in China.   These along with other developments should have a significant positive impact on the vintage wine market in the coming years.

The OECD has championed a framework for the multilateral automatic exchange of financial account information amongst participating countries.  This framework is referred to as the Common Reporting Standard (or “CRS”).  Nearly every country that has a significant financial sector has endorsed the CRS with the notable exception of the US. [Some commentators suggest that, as a result, the role of US institutions in providing sanctuary for undeclared savings is likely to increase – a charge to be evaluated in a later Note.]

If you, or a passive holding company that you control, has a bank account, or investment account held in custody, in a foreign country then it is the CRS’s intention that your home tax authorities will receive annual reports detailing (in general) account balances, income earned and distributions made from those accounts, beginning this year in some countries and in 2018 in many others.

Under the CRS mechanisms, financial institutions will report, to their own tax authorities, information about the financial accounts that they maintain on behalf of non-residents that are resident in a country that is a CRS participant.  These tax authorities will, in turn, provide that information to the tax authorities of those other participating countries.

If the account holder is another financial institution then in most cases the bank does not have to report on that account.  As a result, some entities may prefer to be treated as a financial institution rather than a passive, non-financial entity, so that they can better manage their own reporting.

CRS provides numerous reporting exemptions for entities that are a type that do not tend to be used for tax evasion.  These include some pension funds, trusts where the trustee is reporting on behalf of the trust and certain collective investment schemes.

However, the unique nature of trusts and their role in offshore tax and estate planning, present challenges when applying definitions and rules more suitable for companies and individuals. The CRS regime treats trusts as legal entities for the purposes of establishing reporting obligations.  As a result, there is the potential that trust assets will be attributed to each of the settler (even if an irrevocable trust), each mandatory beneficiary, any discretionary beneficiary receiving a current distribution, protectors and any other persons seen as controlling the trust.

By the end of 2017, most financial account holders will have been asked to complete self-certification forms addressing CRS reporting requirements.  While in our view such forms are not as complicated as the FATCA driven W8-BEN-Es, they remain confusing and difficult for most clients.  However, there is no question that a reasonable comprehension of the CRS regime, and the resultant reporting obligations, is a challenging proposition.

Many private banks and custody banks are now preparing CRS self-certification forms, for their account holders, that consolidate the information required under each of the CRS and FATCA regimes.  This provides some relief vis-à-vis the existing W8-BEN-E and CRS self-certification forms.

Personal holding companies, often registered in off-shore jurisdictions, that simply hold financial assets managed by a financial institution on behalf of a family or individual can present difficult practical issues.  These entities may well be classified as financial institutions (under a “managed by” test) under CRS.  The practical consequence of this classification is that the company itself may be required to file local country reports with respect to its “Controlling Persons”, which may come as quite a surprise to their owner.  We will discuss this in more detail in a later Note.

Vancouver’s new foreign buyer tax did not really come as a surprise.  For many local Vancouverites, it was a necessary measure long overdue.  For some, it was unwarranted and brash as the tax didn’t “grandfather” existing deals (i.e. contracts signed that are set to be closed after the tax becomes effective).  Thus, thousands of unfortunate buyers had to finance additional 15% to close their purchases.   Regardless of how you see it, the tax is here to stay and who knows if any other policies will be put in place to cool down Vancouver’s hot real estate market.

So, what is the foreign buyer tax?   It is 15% of the property value payable by “foreign” buyers, such as foreign citizens, foreign companies and taxable trustees, in addition to the province’s regular property transfer tax.   The tax is only applicable in the Greater Vancouver Regional District and nowhere else in BC; and is targeted at foreign buyers purchasing residential property on or after August 2^nd 2016.  The purpose of the tax is essentially political.  The former Liberal government realized there had been a growing concern vis-a-vis foreign buyers causing housing market prices to inflate.  In politically-correct Vancouver, the term “foreigners” or “Asian” are code words for “Mainland Chinese”.   After years of neglecting what was an escalating affordability crisis, the Liberals decided to show local Vancouverites that they intend to tackle this issue.  The tax was their response.

Despite the government’s attempt at tackling the unaffordability issue, there remains a significant amount of confusion regarding who is “foreign” in this context.   In reality, most of the Mainland Chinese players are not “foreigners” as defined in the legislation for they are already immigrants or Canadian citizens.  It is estimated there are at least 50,000 wealthy Mainland Chinese families, roughly 200,000 people, who are either immigrants or citizens of Canada.   Consequently, they are not impacted by the tax.   Additionally, there are approximately 3 million Canadian citizens living outside Canada, 300,000 in Hong Kong alone, who are not tax residents. They too are not subject to the tax.

So, who are subject to the foreign buyer tax?  Nearly 350,000 international students (or rather their parents) living and studying in Canada (120,000 of them from Mainland China) together with tens of thousands of foreign nationals residing in and tax residents of Canada are considered “foreign” and are subject to the tax.

The general view is that the Vancouver foreign buyer tax will not have a tremendous long-term impact on the Vancouver real estate market as there will continue to be influxes of “foreign” money from China arriving in the pockets of non-“foreign” Chinese citizens and immigrants.  However, there were, and will continue to be, significant reactions to the tax’s implementation.  Prices decreased 6% in Q4 2016 compared to Q3 2016, mostly affecting single detached homes (condos decreased only 0.6%), while sales have plummeted 21% in the same period across all residential properties.

How does Toronto’s new foreign buyer tax compare to Vancouver’s?   On April 20^th, 2017, the Ontario government announced their initiative to cool down the hot real estate market in Canada’s largest city.  The new policies include a 15% foreign speculation tax targeting foreign buyers as well as expanding rent control rules.  Majority of the greater Toronto area will be subject to the tax as it applies within the Greater Golden Horseshoe area.  The Toronto Real Estate Board announced that prices in March increased 33% compared to the same period last year while condo rents increase 8.3% in Q1 2017 compared to Q1 2016.  However, similar to Vancouver, the number of pure foreign investors is relatively small, only at about 4-5%.   So, is the rapid increase in real estate prices fueled by foreign buyers or by local Canadian residents and citizens?

More time is needed to assess the full effect of both taxes, as they are still relatively new and different.  Toronto’s tax was implemented while the market was red-hot, whilst in Vancouver it was executed during a period of cooling.   In the month following the new policies, the Toronto market experienced a 26% drop in house sales.  Vancouver also experienced a period of drastic decrease in sales, especially in the single-detached homes priced above $2mn CAD, but an increase in pre-sale activity and in condo prices.   In Q2 of 2017, the sales slump stopped and the market is picking up again.   Similar to other major markets in the world, such as Hong Kong and London, following each new policy implementation there is a period of reassessment, which is often mistaken for cooling or consumer hesitation.   Sales drop significantly after new policies are put in place, not because the tax is preventing investors from buying, but because investors like to step back and evaluate the policy’s impact on the market.   After a period of assessment, investors usually deem the pros of purchasing significantly outweigh the cons, and consequently sales re-emerge.

Like every other government policy implementation, one can never be absolutely certain of its longer-term impact.   In the case of the foreign buyer tax, the Toronto and Vancouver markets are different and can react to the policy differently.   However, the two markets have enough similarities for one to confidently predict the same outcome.   If Toronto follows Vancouver’s path, we can expect to see increase in sales activity and prices after a period of consumer withdrawal and analysis.  Will these taxes prevent prices in Toronto and Vancouver from going up further?    Probably not, as these markets are so attractive that foreign money will continue to find legal means of entering them.  Montreal, being the largest market where there is no foreign buyer tax, may experience a spark of interest.   The new question ahead is whether governments will implement follow-up policies In Vancouver and Toronto if prices and sales reach or exceed levels previously experienced.