Speculators target B.C. farmland after foreign buyer tax introduced for residences
The surge in agricultural land sales and prices — on property that is not subject to the 15 per cent foreign buyer tax — was largely driven by record-setting sales in the Fraser Valley, South Surrey and White Rock.
Data provided by Landcor for Postmedia’s investigation shows that in July 2016 there were 81 farmland sales in B.C., and the average price was $109,000 an acre. The B.C. Liberal government announced the new residential tax on July 25. In August, farm sales jumped to 144 across B.C., and the average price shot up to $140,000 an acre. Prices continued to rise, hitting an average of $151,000 an acre in September on 142 sales. Sales have fallen back to average levels in the following months, but prices have remained elevated.
By looking specifically at where prices and sales have surged, and reviewing anecdotal reports from realtors, a connection can be suggested between the jump in farmland sales after July 2016 and speculation by offshore investors. The B.C. government has been tracking foreign buyers of B.C. farmland since June 2016, but does not “provide the specific number of purchases” because the data sample is not big enough, Ministry of Finance spokesman Jamie Edwardson said.
Postmedia’s investigation suggests that a disturbing trend is accelerating. Farmland that is crucial to B.C.’s future food needs is increasingly falling into the hands of speculators and builders of luxury property, and farmers are getting priced out. Even before the introduction of the residential tax, a Metro Vancouver government investigation identified that 50 per cent of the region’s agricultural land is not being used for farming, and that many property owners are exploiting tax benefits meant for food producers.
The surge in B.C. farmland prices is a Metro Vancouver story. While prices remained fairly stable in other areas of B.C. after July 2016, farm prices were skewed higher by trends in Fraser Valley, South Surrey-White Rock, Richmond and Delta, Postmedia’s analysis shows. In these areas especially, according to realtors and a May 2017 staff report from Richmond city hall, farm prices are no longer attached to agricultural revenue, but instead are following red-hot Metro Vancouver residential land prices, and reflect a trend of “estate” building on country acreages.
FEARS CONFIRMED
Postmedia’s findings seem to confirm the fears of Richmond Mayor Malcolm Brodie.
Last year, Brodie said he expected the new foreign buyer tax to fuel speculation in farmland. On the day the tax was announced in July, Richmond warned the provincial government of its impacts.
“We said, ‘Why aren’t you applying this to all land?’” Brodie said in an interview. “If you are going to have this tax, it should be applied in a way that it doesn’t attract speculation to farmland. They said, ‘We hadn’t thought of it.’”
Speculators can avoid the 15 per cent tax on residential property by purchasing bare farmland and building a house on it, said Brodie. This kind of development has a number of attractions. First, buyers can obtain farm properties for less than residential zoned land. As a bonus, because of controversial zoning rules, buyers can build much larger mansions on farmland than they can on residential lots. They can also take advantage of very low property taxes on farmland that are meant to encourage food production, get a 50 per cent break on school and transportation taxes, and avoid property transfer tax if a constructed home is lived in by a family member for at least a year before it is sold.
“In the last three years, we have seen the number of transactions on farmland going up in terms of speculation,” Brodie said in an interview. “In Richmond, we are seeing a number of smaller farmland lots being bought because these are attractive to speculators. And we are seeing higher prices per acre. So the trend is up, the prices are increasing, and one of the pressures is the foreign buyers tax. People are buying these properties with farming as an afterthought, just to build estates.”
In January 2014, according to land title data gathered for the combined areas of Richmond and Delta, farmland averaged $540,000 an acre. But the prices exploded to an average of $1.3 million an acre in May 2014. In April 2015, farm prices peaked at $1.6 million an acre in these areas — seemingly in connection with an explosion of speculation across Metro Vancouver, which led to residential land prices surging by over 30 per cent. Prices across Richmond and Delta now sit at about $1.3 million an acre, on average.
In the Fraser Valley, there were 51 farm sales in August 2016 — far more than in any other region in B.C., and the highest monthly total for the Fraser Valley in recent history. Last August, the average price jumped to $550,000 an acre, compared to $510,000 in June 2016. By October 2016, the price hit $620,000 an acre. The prices have more than doubled since July 2014, when Fraser Valley farmland sold for about $250,000 an acre.
“The calls really spiked in relation to the foreign buyers tax,” Langley realtor Danny Evans said. “I was getting a lot more calls on acreages, and I just see the prices going up.”
As in Richmond, it is the smaller farmland parcels of about two to five acres that speculators are targeting in the Valley. Depending on the location and desirability for estate building, these properties are now selling for between $1.5 million and $1.8 million, Evans said. The prices have roughly doubled in the last few years, land title data shows.
“People are not that interested in the farming aspect but they want the tax benefits, and the qualifications are very low. So you put out some beehives or blueberries, and you get about a 70 per cent property tax break,” Evans said. “Investors seek the highest and best use out of the property, so that’s why in Richmond and Langley you see these large homes on farmland.”
In South Surrey and White Rock, there were four farm sales in June 2016, and just one sale in July. In August 2016, there were eight farm sales, followed by seven in September. Prices in this area fluctuated between $300,000 and $600,000 from 2010 to 2015. In July 2016, the average price in South Surrey-White Rock was $1.26 million an acre. In August it was $1.32 million, and by December it had jumped to a startling $1.75 million.
CHINESE, SAUDI BUYERS
Popular two-term Delta independent MLA Vicki Huntington, who chose not to run for re-election this year for health reasons, spent much of her time in office pressing the B.C. Liberal government to protect B.C.’s Agricultural Land Reserve. In the absence of provincial data on foreign ownership, she had her staff digging into land title records. The project took several years, and researchers sometimes had trouble discovering the true beneficial owners, Huntington said, because of opaque ownership structures such as numbered and shell companies.
But Huntington says her staff’s research established a growing trend of farmland purchases in B.C. by Mainland Chinese. There are Chinese companies that appear to be holding land for long-term agricultural needs and others buying land strategically near potential port developments, Huntington says. She says her research also pointed to concerns about the building of mega-mansions on ALR land, and foreign and local developers leaving farmland fallow, while holding out for industrial or residential rezoning.
Huntington, who came from a career in RCMP security services, said she is concerned about money laundering, and Canada’s national interests being subverted.
“We are very concerned with the levels of Chinese buying of farmland in specific areas like Delta and the lower Fraser Valley, and we think there is trouble brewing,” she said. “Mainland China is definitely the cause of it, and it is concerning because they are deliberately acquiring land as a gateway to their political aims. They understand the incredible value.”
Vicki Huntington stands on a farm field in Ladner. As an independent MLA until retiring recently, she researched foreign buying of Metro farmland and wants limits on foreign ownership to preserve farms for the growing of food.
Huntington believes that B.C., like other jurisdictions including Alberta, Saskatchewan, Manitoba and Quebec, should restrict foreign ownership of farmland.
Another Metro Vancouver politician, Richmond Coun. Harold Steves, a farmer in that city, has argued for years that ALR land is endangered by speculators looking for tax breaks. These days he doesn’t have to make the case because the real estate ads he collects speak for him.
He points to a November 2016 ad from offshore-focused firm New Coast Realty that says: “In recent years many investors prefer to purchase agricultural land in Richmond, Surrey and Langley … with a big piece of land, build a luxurious house … swimming pool, tennis court … with the same amount you can only get a 2,000-square-foot house in other areas of Richmond.”
The ad also encourages speculators to buy B.C. farmland and apply to have it rezoned for residential development, citing potential windfall profits.
An ad from Royal Pacific Realty advertises a small acreage in Richmond with building plans for a 12,000-square-foot mansion: “Set up your own private driving range, swimming pool or tennis court. It’s all permitted on ALR land and because of the farm status, you pay no property tax,” the ad says.
Steves also uses the example of a recent ad posted by a Richmond realtor.
“He says that you can build your 20,000-square-foot dream home, and he will lease some land back from you and grow blueberries, and harvest them for you, and you can collect the tax break,” Steves said. “In my opinion, this is a scam.”
As an example of surreal price gains for a specific size and type of Richmond farmland since the foreign [Chinese] buyers tax on residential land was introduced, Steves pointed to one property listed for $340,000 an acre in 2016, and now on the market for $700,000 an acre. Smaller acreages — with new homes already built on them — are now selling for over $1.5 million an acre, he said.
Recent Richmond city staff reports on the monster home issue in Richmond say that “many ALR sites may be viewed only as residential parcels … consequently, legitimate farmers have difficulty acquiring and farming these properties.”
The reports also show that building permit applications for mega-mansions on ALR land have exploded after the foreign buyer tax was introduced. From Jan. 1 to April 3, 2017, 45 residential construction permits on Richmond ALR land were submitted, compared to just 17 permits in 2015 and 18 in 2016. The average size for the homes proposed in 2017 was 12,900 square feet. The largest was almost 40,000 square feet. Brodie and Steves believe some of the largest applications in Richmond are meant to be illegal hotels.
Richmond staff recommend that council impose a 5,400-square-foot limit for mansions built on farmland. Last week, after public hearings, council opted for an 11,000 square-foot limit instead.
“This permits about 1,000 parcels of farmland that have not had new houses built yet to eventually become (luxury) properties,” Steves said.
DECREASING USE OF FARMLAND FOR FARMING
Reports from Metro Vancouver regional government show the use of farmland for its intended purpose is rapidly dropping. A 2013 report found that 28 per cent of farmland in Richmond, Delta, Langley and Surrey was not used for farming, and said “significant intervention” was needed.
A September 2016 report, based on an earlier farm tax investigation, found that only 50 per cent of Metro Vancouver farmland is used for agriculture, and this is threatening food security in B.C.
Metro Vancouver has asked the provincial government to eliminate tax breaks that are believed to encourage non-farm uses, but the regional government has not received a response because of the recent election, spokeswoman Sarah Lusk said.
“There are an increasing number of property owners in the ALR who are using it for other purposes than farming,” the 2016 report says. “Property owners that do not farm themselves, but rather lease their land to a farmer, receive benefits intended for farmers, including significantly lower taxes.”
The report compares tax and different methods of assessing values on two similar houses, one on ALR land, and one on urban residential zoned land. The home on ALR land is assessed at $750,000, and property tax is $3,800. The home outside the ALR is valued at $4.2 million, with property tax of $13,600.
The report says the provincial government should raise the farm revenue threshold that property owners must claim to obtain major tax breaks on small farms, from $2,500 to at least $3,700. Also, Metro Vancouver wants elimination of a 50-per-cent tax exemption in school, transportation and other taxes that people who build homes on ALR land can receive. In 2015, school exemption taxes reduced ALR property taxes in Metro Vancouver by $4 million. Residences on un-farmed ALR land claimed $3.12 million of the reduced taxes. In addition, the report says, the building of homes on ALR land increases the demand for municipal services, which increases the tax burden for citizens who live in urban residential zoned areas.
GREENS COULD FORCE CHANGES
Mega-mansions on farmland, tax breaks for non-farm uses, and foreign ownership of agricultural land are set to be a hot-button issue in B.C.’s new, uncertain provincial government. The B.C. Liberals have resisted pressure to reform tax breaks and outdated zoning laws for ALR land, and have weakened ALR rules in favour of non-farm uses, says former MLA Vicki Huntington.
In the last term, Green Leader Andrew Weaver proposed legislation to prohibit foreign entities from purchasing Agricultural Land Reserve property over five acres without permission from the provincial cabinet.
Before the May election, he stated: “Since the introduction of the 15 per cent foreign buyers tax on residential real estate in Metro Vancouver, Chinese speculators have targeted other areas of the province and our agricultural land. Investors are taking advantage of tax breaks meant to encourage farming — building mansions and using the land for speculative purposes. As a result, farmland is being taken out of production and prices are skyrocketing, making farmland unaffordable for local farmers.”
Weaver, with his new influence on the balance of power in government, could conceivably force action on the farmland speculation issue.
“The issue of the monster homes being built to avoid the foreign buyers tax and the exploitation of tax credits that are meant for farmers is something that any new government will have to address,” NDP MLA David Eby said. “And that goes for B.C.’s housing crisis, in general.”
No comments:
Post a Comment
Comments always welcome!