By James Dainard
The competition gets even stiffer for Seattle homebuyers as a new foreign investment tax is driving Chinese investors south. Effective Tuesday, August 2nd, Vancouver, British Columbia announced and implemented a 15% offshore investor tax.
Designed to slow Canada’s most expensive property market, the tax offers local home buyers an opportunity to compete with wealthy overseas investors.
“North Vancouver has traditionally been a middle-class area, but the demographic is changing and young families can’t afford to live close to downtown. People are moving farther and farther out for affordability,” said President of the Real Estate Board of Greater Vancouver Dan Morrison,
Much like the Pacific Northwest, Vancouver is suffering from an affordability crisis. Home values in the region have increased exponentially, rising 23% from the past year.
The tax appears to be effective, at least in its early stages as Vancouver saw a 20% drop in home sales after only a month. Additionally, the number of foreign transactions decreased dramatically from 2,034 to 60 following the taxes implementation.
Critics of the measure argue that investors have and will find ways to evade the new tax, although, market data suggests that for the time being it is effectively skirting foreign buyers. Too early to draw conclusions, only time will tell if the tax remains a successful solution.
Now, more than two months later, Seattle and its outlying regions are seeing the repercussions of the British Columbian change. According to the Association of Realtors, Chinese buyers account for 55% of all homes purchased by foreigners in Washington state.
Seattle, one of the hottest markets in the country will only get hotter with increased foreign interest.
“Those funds [from foreign buyers] are starting to surge, and I think we’ve only seen the beginning of it,” said Peter Orser, director of the University of Washington’s Runstad Center for Real Estate Studies.
Juwai, a website dedicated to assisting Chinese citizens in international purchases, reported Seattle as the primary location of interest among their consumers.
According to Juwai, Seattle property searches demonstrated a year over year increase of 143%. Comparatively, the website’s Vancouver property searches dropped 81% over the same time period.
These numbers aren’t only representative of interest. In 2015 alone, Chinese buyers poured $1.6 billion into Washington State real estate. While $1.6 billion may seem like an exorbitant amount, Washington’s sales volume pales in comparison to that of British Columbia. News reports depict $760 million in Chinese transactions in British Columbia in just one month earlier this year.
Chinese interest in Washington is growing for a number of reasons. Although considered unaffordable to locals, Seattle remains a relatively affordable location for international investors.
‘When they look at Seattle, they think wow, everything seems like a screaming deal,” said Realogics Sotheby’s Broker Mei Yang.
Many Chinese investors are utilizing Seattle’s real estate market as leverage against the uncertainties in their own economy. While the Chinese currency decreases in value, wealthy Chinese investors feel they need a safer place to put their money.
Essentially using Seattle’s market as an offshore bank, it is likely that Chinese investors will continue to give up home prices in the region. If Seattle becomes the new Vancouver, it’s possible that a foreign investment tax is likely to follow.
About the author…
James Dainard is one of the founding partners of Intrust Funding, LLC. He has been buying and selling real estate in King, Snohomish and Pierce Counties for the past seven years. James has built a reputation in Washington for providing investors with multiple exit strategies and supplying them with easy and fast lending sources. He enjoys staying fit, spoiling his dogs, and traveling to exotic locations with his wife Clair.
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