'Shadow flipping' loophole to be closed, says B.C. Premier Christy Clark
Premier says a few bad apples are blemishing the reputation of many in the industry
"Greedy, shady" real estate agents will no longer be able to profit from the practice of so-called "shadow flipping" in British Columbia, Premier Christy Clark announced Friday.
Clark said the government is closing a loophole around the practice of contract assignments that will demand sellers not only give consent to any assignment put in place, but must give informed consent.
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Once the final sale of the property eventually goes through, any profits accrued from the assignment must return to the original seller, Clark said.
She said the "shady practice" of shadow flipping is motivated by "pure, naked greed, and the way to end the practice is to take the profit out of it."
Legislation is not needed to close the loophole, as it is a regulatory change, making it easier for the government to move more quickly on this issue than on others still under review by the Real Estate Council (REC).
Any penalties for breaking the new rules will be set by the REC.
"Those who break the rules, I hope will lose their licence," Clark said.
She noted that those who use assignment clauses for legitimate uses will not be affected, just the "greedy, shady operators."
Tackling affordability and other issues
"Double-ending" — where one real estate agent acts as both the seller and the buyer's agent — is a more complex issue, Clark said, because in small communities the practice may be forced by necessity, rather than choice.
The premier said that ministers Mike de Jong and Rich Coleman would be sitting down with Vancouver Mayor Gregor Robertson to discuss ways to increase the supply of both affordable housing and rental units.
The government will also be looking at strategies to discourage "irresponsible speculation" in the market.
Clark said she was "disturbed" by reports from a new investigation that show real estate agents not following money tracking provisions.
The Financial Transactions and Reports Analysis Centres (FinTRAC) said it looked at more than 80 real estate firms in the Greater Vancouver area to determine if they were adhering to federal laws requiring them to identify clients and track money. The agency found that in 55 cases practices were "significantly" below standards.
Clark also noted that, beginning this summer, everyone purchasing property in B.C. will have to disclose their citizenship.
Asked about whether she thought there should be a measure to claw back equity from homes that have risen significantly in value, Clark said that the government would benefit through the property transfer tax, but that she didn't believe homeowners should be penalized for making a good investment.
More action needed
Vancouver Mayor Gregor Robertson voiced his support for the new rules, but noted that supply alone won't deliver affordability. He has called for a tax on real estate speculation.
"Premier's commitment to banning shadow flipping is good first step to reduce toxic speculation in B.C. housing market," he said on Twitter. "Also need new government tools to create level playing field, protect affordability."
B.C.'s Opposition NDP Leader John Horgan said the premier's announcement was a step in the right direction, but questioned why she was taking action now. The NDP introduced two private member's bills this week, one calling for a two per cent speculation tax and the other to close a loophole allowing investors to avoid paying property transfer tax.
Horgan said the best outcome would be a combination of the new rules Clark announced and measures that the New Democrats have put forward.
"Obviously, if we can keep money in the pocket of the initial seller, that's good news for them. What we've been concerned about is the loss of revenue by allowing [contract] flipping to take place and not capturing that property transfer tax."
NDP housing critic David Eby said there will be a "serious issue" if the government allows the real estate council to enforce the new rules, given that the regulatory body has apparently failed so far to crack down on the practice of contract flipping.
"The real estate council has been an entirely ineffective body to date," he said. "It's my hope that the independent advisory group that is investigating the real estate council right now provides some clear guidance to ensure these rules are actually followed once they're made."
The council said in a statement that it will carefully review the premier's announcement and looks forward to building on it through implementation of the advisory group's recommendations.
With files from The Canadian Press