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Have you ever wondered why house prices dramatically increase or decrease? Of course, it is a yes to those who have rented or bought a house. It is these significantly increase, or decline of house prices is what is referred to as a housing price bubble or merely a housing bubble. It is one of the various kinds of asset price bubbles that from time to time happen in the market and its basic concept is similar as to that of other asset bubbles which consist of two main phases. Firstly, a period when prices of the house increase dramatically, driven by speculation. Secondly, this is the phase where the costs of the house fall sharply. Also, it is among the asset bubbles which have the most significant impact on the real economy since they are credit-fueled. It as a result of most households takes part and not only as investors, and since the wealth impact from housing tends to be more significant as compared to other financial assets types. An excellent example is housing in Vancouver, and it has been years since it had a standard housing market. Therefore, it is essential to dig deeply into the Vancouver housing bubble, it causes and recommendations.
It has been many years since Vancouver experienced a standard housing market. Therefore, it has the goal to deflate the balloon sooner than it pops. Globe and Mail reported that there is much evidence of Vancouver prices pulling back. Several homes which were purchased in previous years at the market peak have been identified to change hands in the following year at very lower prices. While, the Greater Vancouver Real Estate Board reports that sales declined to a twenty-four year low in April, yet as listings increased by forty-six percent and sellers have been identified to be extra eager to seller and buyers to be less enthusiastic about buying. The Teranet-National Bank House Price Index that tracks prices in eleven Canadian metropolitan regions have revealed Vancouver is still the most inflated market in the country. Where prices mark one eighty percent higher as compared with 2005, though since peaking at 2018 house prices of Vancouver are down by 4.7 percent, consisting a 0.45 percent decrease in April (Gerszak, 2019). Therefore, if the numbers are real, then the housing market of Vancouver is not cratering. As an alternative, it seems to be correcting, steadily, and that is what the government policy have aiming to achieve.
Six reasons which have been identified to be the cause of Vancouver housing at last moderating include the mortgage stress tests as the first one and which was introduced in early 2018 by the federal government, thus effectively declining the amount of which Canadians can borrow. The other one is the tax on foreign buyers, which was created in 2015 and set to be fifteen percent. The third reason is that last year, and the government raised the provincial NDP tax to twenty percent, and the transfer tax was raised from three to five percent on homes which are worth over $3-million. In discouraging speculators, Vancouver brought in empty homes tax through forcing them to make a specific payment if they are neither landlords nor residents. B.C. finally set up a residential-property registry that will difficult to use real estate as dirty money Laundromat whether shady overseas business or soiled Cash that comes from domestic crime. After many years of irresolute, those with power to bridle in the Vancouver housing market those are provincial, municipal, and federal politicians all at last took action (Gerszak, 2019). The steps are bearing fruits, and its future is promising, if everything goes well, Metro-Vancouver will turn more affordable residents place, especially for those who intend to purchase a long term home to live.
There are several causes of the housing bubble in Vancouver, and the first one is money laundering. The British Columbia's Finance minister released the report had adequately explored the role that money laundering has played in the real estate market of the province and the report details on the assumptions and methods applied to estimate the money laundered in Canada as well as determining the amount laundered via real estate in B.C. The report relied upon previous studies on money laundering by other jurisdictions and also relied primarily upon recent international estimates which stated roughly that 2 to 5 percent of the global GDP consisted of laundered money (Haider & Moranis, 2019). Also, it relied on the comprehensive database of crimes per country. It identified some strange suspects for laundered money inflows to Canada, and the bulk of the approximated inflows originated in the United States followed respectively by Northern Europe as well as Western Europe. The relationship that exists between the laundered funds with real estate seems even more tenuous. The second cause of the housing bubble in Vancouver was speculation and that why a tax has been brought on empty houses to discourage speculators through forcing them to pay if they are neither landlords nor residents. The third cause was too much ability for Canadians to borrow the large amounts needed to purchase the real estate (Gerszak, 2019). The fourth cause of the housing bubble in Vancouver was many foreign buyers' abilities to buy houses at lower or no taxes to discourage them; the government created the fee of fifteen percent.
Regarding the Vancouver housing bubble issue, several proposals have been made. The first recommendation was given by the British Columbia's Minister of Finance report which recommended for greater transparency in land, property, ownership and coordinated omission of financial transaction by several governments are essential to moving from estimates to substantial money laundering evidence (Haider & Moranis, 2019). The second recommendation is the use of Gaming Service Providers (GSPs) to complete funds source declaration for cash depositors as well as the bearer monetary instruments that exceed the FinTRAC threshold for Cash in a large amount. The third recommendation is that the regulator of the GSPs is seen on site and also available (German, German & Inc., 2018). Therefore, GPEB investigator should be on shift and accessible to the high volume of casino operators on a 24/7 basis.
Despite the British Columbia's Minister of Finance report identifying money laundering as the primary cause of real estate bubbles due to the movement of suspect funds and even estimating its impact leading to increase of the prices of housing by five percent (Haider & Moranis, 2019). Also, if taken at face value, it still does not explain the other factors that led to single-family houses in Vancouver appreciating annually by thirty percent.
From the discussion, it is clear that for years Vancouver has not had a standard real estate market which was caused by money laundering in the region, the ability of Canadians to borrow, and foreign buyers' ability to purchase homes with prices which are low or not taxed. Setting everything right, which is the primary goal of Vancouver since the housing bubble has impacted its real economy by a more significant margin, the mortgage stress tests were introduced by the government. Also, reducing the amount Canadians can borrow, taxing the foreign buyers, and raised the transfer tax as well as the provincial NDP tax. Several recommendations have been made towards this scenario of the housing bubble, and the first one is greater transparency in the real estate business. The second recommendation is the use of GSPs and the availability of their regulator. Finally, a counter-argument is offered regarding money laundering inability to explain other factors that caused the single family in Vancouver.
German, P. M., German, P., & Inc., A. (2018). Dirty Money: An Independent Review of Money Laundering in Lower Mainland Casinos conducted for the Attorney General of British Columbia. Retrieved from https://news.gov.bc.ca/files/Gaming_Final_Report.pdf
Gerszak, R. (2019, May 21). How to deflate a housing bubble from Vancouver to Toronto. Retrieved June 10, 2019, from gobe and mail: https://www.theglobeandmail.com/opinion/editorials/article-how-to-deflate-a-housing-bubble-from-vancouver-to-toronto/
Haider, M., & Moranis, S. (2019, May 16). When it comes to money laundering in real estate, there are mor unknowns than knowns . Retrieved June 10, 2019, from Financial Post: https://business.financialpost.com/real-estate/when-it-comes-to-money-laundering-in-real-estate-there-are-more-unknowns-than-knowns
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