B.C. announces new rules to end 'shadow flipping'
Finance minister unveils form to gather information about role of foreign capital in red hot market
B.C. Finance Minister Mike de Jong announced new rules Tuesday aimed at ending the controversial practice of 'shadow flipping' by eliminating a means for anyone but the seller of a house to profit from real estate contract assignment.
The province also unveiled new forms designed to collect information about the role of foreign capital in B.C.'s red-hot real estate market and the nationality of the buyers driving prices into the stratosphere.
"There are lots of theories about what is contributing to steadily escalating values of real estate values in British Columbia," said de Jong.
"The objective here is to get beyond the conjecture and the speculation and actually have hard data."
Cutting out the middle man
The new rules for contract assignment will take effect on May 16.
Premier Christy Clark first announced her intention to crack down on 'shadow flipping' after a series of media reports earlier this year.
Contract assignment is the process through which a person can assign their part in a contract of purchase or sale to someone else.
The practice has a legitimate role in real estate, but 'shadow flipping' involves the assignment of contracts and the immediate resale of a home for a higher price without the seller's knowledge.
In some cases, real estate agents in the middle of the deals were accused of taking the profits.
According to de Jong, under the new rules, Realtors who draft offers to buy property must include two separate terms about contract assignment in an offer: "one that requires the seller's consent to transfer the contract; and one that requires any resulting profit to be returned to the seller."
If a prospective buyer wanted to lift those terms from an offer, the licensee would have to notify the seller. And the seller would be told to seek independent professional advice.
Collecting data on non-Canadian buyers
De Jong said the government will collect more information about the nationality of purchasers through questions on the property tax transfer form.
Starting in June, owners who are not Canadian citizens or permanent residents will have to provide the country or state where they are a citizen when they register property.
Corporations buying real estate will also have to disclose the citizenship of non-Canadian directors.
The information will be shared with the Canada Revenue Agency.
The moves are separate from the work of an advisory group which is expected to table recommendations for an overhaul of B.C.'s real estate industry by the end of the month.
An interim report issued by the group last month suggested the need for both bigger fines and the end of deals in which real estate agents represent both buyer and seller.
The task force is also considering whether or not self-regulation is adequate for the multi-billion dollar real estate industry.