IS THIS THE BEGINNING OF THE GOVERNMENT TIGHTENING THE REINS ON PRESALE CONDO FLIPPERS?2018-05-08 10:33:24 Posted By Amir Hamzehali
It was in the news last week that the Government plans to increase maximum fines for illegal flipping by 1000%! The changes were promised by the government in February's budget, as part of its 30-point housing plan.
Two pieces of legislation, one being related to presales, brought forward by the Provincial Government on Tuesday, April 24, 2018. The legislation amends the Real Estate Development Marketing act, forcing the real estate developers to report when a condo unit is flipped prior to the Completion of construction, and allowing the Office of the Superintendent of Real Estate to investigate if there is evidence that such information is not being disclosed.
Penalties have also been increased by more than 1,000% - up to $250,000 fines for individuals and $500,000 for corporations not complying with the requirement. These fines could mount to millions if criminal charges are laid.
No doubt, this was a great step for the Government to make sure everyone pays their fair share of taxes, including the condo presale flippers!
It was also on the news this week that the B.C. watchdog is investigating the industry insiders, particularly realtors, who are buying and flipping condos for large profits, which causes less supply and drives up the prices for the general public.
Buying and flipping presales by realtors is not an illegal act as long as proper disclosures are made to the next buyer(s) at the time of sale.
In the case of condo presale, the Government’s main focus should be protecting the general public from having to pay more for properties when price increases are caused by middleman activities on the market.
Now the real question is: are all these steps, such as taxing the speculators on their net profits or requiring the disclosure of interest from realtors, effective enough to make these market participants give up their lucrative business of flipping presales?
There are many ways that the Government can make sure the condo units will get into the hands of the end-users. Policies, ranging from banning the flipping of presales altogether, requiring developers to only market and sell their units to owner users, or implementing high tax rates on profits made through the sale of the contracts. These can force the speculators to leave the presale market, although, each of these policies have pros and cons when brought into effect!
Banning the assignment of presale contracts before completion would definitely hurt some of the purchasers who bought their presale units in good faith in the past, but, cannot complete on the deal because of the new financing restrictions. These types of buyers have no choice but to assign their contracts to another buyer because they will not be approved for a mortgage. In cases like this, the purchasers of presale condos would lose their deposit to the developer if they could not complete the sale. So, to avoid this catastrophe for some buyers, the Government is better not to ban the sale of contracts before completion totally.
Forcing developers to give the public equal access to all units and to make pre-construction condo units available to all potential buyers at the same time and the same price, will help many buyers to have first hand access to presale units. But at the same time, this policy does not stop speculators or wealthy investors from snapping up large numbers of condo units with the intention of flipping them in the future at a profit. Regulating developers to only market and sell their presale units to owner occupiers may also not be practical, as the price increases in condo market might be tempting to even these buyers to assign their purchase contracts at a profit. Probably the best approach for the Government to solve the speculation problem will be to charge high tax rates on the profits made when presale contracts are sold. By taking away profits from the flipping business, the Government could easily root out speculators from the market.
We should remember that condominiums are the only type of housing left that are still affordable to our young families. As a result, the Government needs to be extra cautious in order to protect this segment of the market from any opportunistic activity.