New rules target shadow-flipping
OUT-OF-CONTROL PRICES: Two new terms will start Monday for real estate agents’ draft orders to buy houses
The provincial government unveiled two new requirements Tuesday in a bid to clamp down on “unethical or predatory conduct in the real estate market,” including socalled “shadow flipping.”
Critics applauded the move as a first step to weed out bad players in Metro Vancouver’s hot real estate market, but said since the practice is only a symptom of a market with out-of-control prices, it would do little to address the main issue of housing affordability in the region.
Shadow flipping, which is legal but controversial, happens when a buyer of a property sells a sales contract — or ‘assigns’ it — to another buyer or buyers, usually for a higher price, before the deal with the original seller closes and is recorded in land title records.
Middlemen who arrange the deals split the difference between the original price and each higher one. This means the original seller receives less money than the property is finally sold for.
It is easy to find such assignments on offer on Craigslist and other trading sites as well as popular social media apps like WeChat.
Starting Monday, when real estate agents draft offers to buy a residential property, they will be required to include two new terms: before the property can be assigned to another buyer, the original seller must give written consent; and, any resulting profit from such an assignment must go back to the original seller.
“This will have an effect on a narrow band of rogue realtors,” NDP leader John Horgan said. “But it doesn’t do much about the No. 1 issue that I hear when I talk to people and that is how do they get into a housing market like the one we have?
“The premier said she wanted to get at the ‘naked greed’ in the market, but this (move) is a modest fig leaf.”
Premier Christy Clark has previously said real estate agents who do not follow rules set out to end shadow-flipping would face stiff penalties, but the announcement, made by Finance Minister Mike de Jong in a news conference, did not detail if there would be any significant changes to existing levels for fines and suspensions.
De Jong said the Real Estate Council of B.C. would be responsible for enforcing the new rules.
Starting June 10, the government will use a new property transfer tax form that asks for a buyer’s principal residential address and whether he or she is a Canadian citizen or permanent resident, de Jong said.
In the case of a company buying a property, there will be a requirement to disclose directors who are not Canadian citizens or permanent residents.
De Jong said there was a plan to share this data with the Canada Revenue Agency “to help with the administration and collection of applicable taxes at the federal level.”
He said such data about buyers would be collected for six months to a year, aggregated and then made publicly available.
He said he was hesitant and “cautious to single out people because of their nationality” at a time when the government has been working “to develop our trade linkages and attract people to invest here. … Better to have a sound set of data and not just be speculating.”
However, he couldn’t name a threshold of foreign ownership “at which the government might consider taking action” such as a punitive tax.
Shadow-flipping of the kind that could take advantage of an original seller happens only in a market with continually rising prices, said Tom Davidoff, who researches real estate finance at the University of B.C.
Davidoff is one of 10 professors at UBC and Simon Fraser University who earlier this year suggested a 1.5-per-cent real estate surcharge on absentee owners could be pooled into an affordability fund.