Premier Christy Clark is vowing to end the controversial practice of shadow flipping, which is helping to drive up the cost of real estate in an already over-heated Metro Vancouver market.
The premier says she’ll do it by taking away the incentive for flippers – profit.
“Shadow flipping in Vancouver, we all know, has been driven by greed. Pure, naked greed. And the way to take, the way to end that shady practice for greedy people? Is to take the profit out of it.”
The act of shadow flipping allows realtors and investors to flip a property multiple times before a sale is even complete, jacking up the price along the way.
No more money to be made from shadow flipping
Clark says that any shadow flipping profits will go right back to the seller.
“Any profits that result to the assignee…. that accrue to the assignee, automatically go back to the seller. So, if someone assigns the sale of their home to someone else, and the person to whom it is assigned makes an additional profit on the final sale of that home, that profit will go back to the seller.”
Clark says sellers must also consent to having their homes contract assigned to another buyer, and that she couldn’t wait for an independent report by the Real Estate Council before some kind of action was taken.
NDP Leader John Horgan says this is a step in the right direction, but he notes it’s only happening after months of NDP pressure. He wonders how it would actually all play out.
“How is enforcement going there, Premier? Are you going to put the resources in place so that you can track this activity and make sure there is an assignment, if there is an assignment, is going back to the original seller.”
How will government enforce it?
“We are going to work with the Real Estate Council to make sure that there are really good strong prohibitions. Ultimately anybody who breaks the rules on this I hope will lose their real estate licence.”
She says that by working closely with the Real Estate Council, she thinks “we can get this done in the next few weeks or within the next month.”
Clark also wouldn’t rule out a speculation tax to address affordability.
“We are going to work with the City of Vancouver and other cities on issues with respect to vacancies, and speculation, and supply. So all of those issues are on the table nothing is off the table for discussion.”
She says Housing minister Rich Coleman and Finance minister Mike de Jong will meet with Vancouver mayor Gregor Robertson.
Real estate firms will need to comply
The Premier says she is disturbed over reports that a number of real estate firms are failing to comply with disclosure rules.
FinTRAC, the federal agency that enforces anti-money laundering laws, has found dozens of Vancouver-area real estate firms aren’t complying with federal law.
Clark says her government is working with Ottawa.
“Now you should know that we are sharing tax information with the federal government. We continue to work with them on that. We want to make sure we close any of those loopholes. We also want to ensure transparency. It is important though as well from FinTRAC’s perspective I think to make the rules as easy to follow as easy to comply with as possible for realtors.”
The Canadian Real Estate Association is critical of FinTRAC saying its training for the industry is “clearly insufficient”.
Cracking down on shadow flipping may not help affordability
Tom Davidoff is an Associate Professor with UBC’s Sauder School of Business. He says today’s announcement by the Premier is one drop in a big bucket.
“The steps they’re taking to reduce the so-called shadow flipping practice is a logical step to take. It’s not going to do anything to solve affordability by itself, but I think having a better regulated market is helpful.”
He notes people need to understand that shadow flipping is a symptom, not a cause, of home price appreciation.
What about the panel struck to investigate shadow flipping?
B.C’s Superintendent of Real Estate Carolyn Rogers, who chairs the special advisory panel, released the following statement.
“The Advisory Group will review the Premier’s announcements in light of our planned work. Contract assignment (“shadow flipping”) is one of a range of issues the group identified in its Terms of Reference, and we anticipate we will have additional proposals and recommendations for the Real Estate Council and government to consider. I look forward to delivering a report that strengthens consumer protection and the integrity of the regulatory regime.”
The panel will now meet to determine what the Premier’s announcement means for an investigation whose primary focus was shadow flipping, something the Premier has just pledged to put an end to.
Premier’s commitment to banning shadow flipping is good first step to reduce toxic speculation in BC housing market #vanpoli— Gregor Robertson (@MayorGregor) March 18, 2016