Canadian real estate continues to have unusual periods of activity in which prices and sales increase faster than their average rates. Prices have surged dramatically in some markets recently. For example, prices rose sharply and some high profile sales occurred in the current quarter in Vancouver. A large number of which involved foreign investors.
Bubble Talk Rises
As prices soared in Vancouver and increased in Toronto, the talk in the financial news raised the notion of a real estate bubble. In Canadian financial news, bubble talk rises whenever prices show spurts of rapid growth, and this is no exception. The realistic assessment of price increases, when compared to wages and incomes, makes a stark picture. Prices rise much faster than wages and incomes. The conclusion from those facts for some analysts is that prices will outstrip income, and the real estate market will crash. The bubble did burst in recent memory, but it was in the US in 2006.
Speculation in the Hot Markets
Speculation can be a symptom and a cause of overheating in real estate markets. In the case of Vancouver real estate, it is clearly a symptom. The market has been warm for more than a decade and occasionally goes into a heightened state. There is a significant amount of speculation in the Vancouver market and real estate investors take passing positions on a property to get a quick flip and short-term profit.
Tax collection Issues Surface
Speculators sometimes play a useful role in bringing more transaction to a timely close. These investors have speed and profits as their driving forces. They can sometimes create enormous streams of personal and corporate cash as real estate activity can rise to impressive spikes at times. In Vancouver, news media carried a number of headlines and reports and prominent investigations by the Canadian Revenue service into tax payments. With information focused on particular individuals, the reports create a picture of active foreign investors and real estate agents fully engaged in the high paced current market.
Taxes Are Good for the Public
Real estate taxes and income taxes benefit the Canadian people and government. The high volume of sales causes an enormous amount of financial, and other economic activity. The tax revenues from sellers and agencies involved in the record levels of sales volumes is a boost for the government. This increase in revenues comes during a time when oil revenues bring less than anticipated due to a global slowdown in crude oil.
Investigations may Change the Laws
Some discussion includes the idea of enforcement. Other officials have ventured the possible need to change policies or amend the tax laws to get a better and more just level of enforcement. Local officials can determine the extent of compliance with the law in their areas; the national government would have to consider the impact on government financing and the economy
BC and Ontario Bear the Brunt
Toronto and Vancouver are the centers of real estate market growth, high sales spikes, and speculation. They will have to work with the national government to resolve issues and develop more effective revenue collection policies. Many media reports and investigations centered around these two markets, and the House of Commons has initiated hearings to study the issues.
Speculation and Overheating
Tax collection is part of a larger problem in the major markets. Speculation can lead to overheating in these major markets which could adversely affect the national real estate market. The idea of speculation as a major factor in Vancouver and Toronto would concern the entire Canadian financial system. While Toronto and Vancouver would have a strong interest in curbing speculation, they can do no more than enforce current laws. The impact of overheated markets is a national issue.
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