The Official Opposition is going to make an issue of the actions of some Lower Mainland real-estate agents in the upcoming session of the legislature.
Today at a news conference, NDP housing critic David Eby called for an arm's-length government investigation into what he characterized as "fraudulent and insider-trading practices".
He told reporters that these actions have either been reported in the media, told to him by a whistle blower, or revealed in a B.C. Securities Commission hearing.
"I look forward to bringing these issues directly to the minister responsible for housing (Rich Coleman), directly to the minister of finance (Mike de Jong), and to Premier Christy Clark," Eby said in his Vancouver–Point Grey constituency office. The spring session of the legislature begins Tuesday (February 9).
Eby opened his news conference by discussing a complaint from a real-estate agent, who wished not to be identified.
The whistle blower told Eby that some agents who deal with international buyers have put the Canadian broker's address rather than the purchaser's address in reports to the Financial Transactions and Reports Analysis Centre of Canada, aka FINTRAC.
"In doing this, they [the agents] conceal the actual address and residency of the person who is providing the money for the transaction as being outside of Canada," Eby alleged.
FINTRAC's mandate is to prevent and deter money laundering and the financing of terrorist activities.
He also accused the provincial government of being "asleep at the switch" while this is taking place. And he said that if some agents are misleading the federal regulator, it needs to be stopped.
Eby suggests province may be losing hundreds of millions of dollars
He also mentioned another of the whistle blower's claims: that there's a "widespread practice of realtors selling a home with a long closing window of two or three months".
Over this time, Eby alleged that the contract to purchase is sometimes being assigned to the real-estate agent, other buyers, or the agent's colleagues.
This enables these third parties to enjoy a "lift" between the initial listed price and the final price paid for the property to a middle person.
"If they're selling to somebody else, then they would collect two, three, and sometimes four or more commissions on a single sale," Eby charged. "There are a number of concerns that this realtor had about this—in particular, the purchasers were not paying, as would be expected, the property transfer tax each time the property was sold. The only person who was paying the property transfer tax was the final purchaser."
The Vancouver–Point Grey MLA claimed that the loss of property-purchase-tax revenue to the government could add up to six figures on a single property if the assignment is transferred several times.
"When you multiply that by the kind of value that we're seeing going through our real-estate market—this is happening on a widespread basis—you're potentially talking about tens or hundreds of millions of dollars lost in provincial-property-tax revenue and potentially lost capital-gains-tax revenue if realtors are engaging in this conduct by actually buying the property themselves," Eby claimed.
He stated that he wrote a letter to the Real Estate Council of B.C. on January 4. In it, he suggested that both of these activities would be easy to detect through spot audits.
On January 19, the self-regulating organization responded by claiming that Eby's concerns related to compliance with FINTRAC rules and federal and provincial tax laws. And that's where these reports should be filed.
"It is also important to note that our jurisidiction is dictated by the relevant provisions in the Real Estate Services Act," wrote Geoff Thiele, the council's director of legal services.
Later in his response to Eby, Thiele wrote: "Again, the issues raised in your letter appear to relate primarily to compliance by clients with financial disclosure and tax laws. And to the extent they relate to licensee conduct, no specifics have been provided that would suggest that your informant's concerns are warranted."
Eby disputed Thiele's interpretation, claiming that plenty of "specifics" have come forward. He cited a February 6 article in the Globe and Mail outlining how these assignments are taking place. He also cited evidence at the B.C. Securities Commission that demonstrated the wrong address had been placed on disclosure documents.
In addition, Eby pointed to an agent's blog post in which he noted that having a real-estate licence means that other agents will bring offers forward. "This means you get a clear advantage over other investors that do not have the ability to do this and will get plenty of sale offers under contract," the agent wrote.
Eby said that an independent probe is necessary because the Real Estate Council of B.C. is "apparently not interested in investigating this issue".
He emphasized that the public shouldn't have to seek three or four different opinions on the value of their home when a real-estate agent says it might be worth $1 million because the agent might be lying. The MLA also said that reputable real-estate agents shouldn't have their images undermined because those who are engaging in assigning contracts are not being investigated.
Eby offers theories why assignments are occurring
Eby emphasized that it's "really difficult to know" why there are so many assignments "apparently happening".
"It could be as a result of the market being incredibly hot," he stated. "The market being incredibly hot could be the function of real-estate agents speculating. The market being incredibly hot could be a function of international money coming into the country. The market being incredibly hot could be a function of the lack of availability of stock. All these factors together, most likely, are what is driving the market. But there’s no question whatever is driving the market, taxes are supposed to paid. Clients are supposed to be fully disclosed to by realtors. And the forms are supposed to be completed properly because they are there for a reason to be sure that we detect improper money coming into the country—money coming from corrupt processes or criminal activities.”
Nobody from the Real Estate Council of B.C. returned an emailed interview request from the Georgia Straight to respond to Eby's allegations. [Later in the day, the council issued a statement noting that assignments of contracts are legal across Canada and an advisory group will investigate if they're being used appropriately in B.C.]
During the news conference, Eby also explained that FINTRAC assesses risk, in part, on the origin of funding. The buyer must supply his or her name, address, business or occupation, birthday, identification-source and number, and the place of source of the identification.
Eby added that FINTRAC has categories of low, medium, and high risk for transactions to be deemed suspicious. According to Eby, putting the address of the Canadian broker down instead of the foreign buyer's home address results in FINTRAC flagging a transaction as being of "low risk" rather than "medium risk" if the buyer does not operate in a "high-risk country".
"This has the effect of lowering the perceived risk of money coming into Canada from the perspective of the investigating agency," Eby said.