The Premier of British Columbia, Christy Clark, announced on March 18th, 2016, the Government’s intention to address the issue of shadow flipping. She said:
“Real estate contract assignment ? dubbed “shadow flipping” in media reports ? refers to the practice where some real estate licensees and some purchasers have taken advantage of rapidly rising prices by using assignment clauses to acquire a client’s home then assign the contract to a third party for a profit. New provincial rules will prevent the abuse of assignment clauses by requiring the express consent of the seller and mandating that any profits from assignments are returned to the home owner.”
Real estate licensees are real estate agents, and the government is suggesting that it is the Real Estate Council of British Columbia that will come up with the recommendations to address this issue. In that regard, the Council has appointed an advisory group, and has stated that recommendations will be forthcoming in April, 2016. Note that the Real Estate Council of British Columbia has jurisdiction over agents and licensees, and not the general public.
Last week, Finance Minister Mike de Jong announced the new rules which, commencing May 16, 2016 will require property offers to include two separate terms dealing with contract assignments in pending deals.
He says the rules shall require real estate agents to include the consent of the seller to transfer the contract to another buyer and shall further require that profits from the contract change must go back to the original seller.
These measures are designed to address the problem previously described by the Premier (in her public remarks on the 18th of March), as follows:
“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.
To supplement the sanctions, new disclosure rules will also create new data on the use of bare trusts, which have been utilized to transfer property ownership without paying the property transfer tax. Mr. de Jong said the data, which must be provided on the new property transfer tax return form, will be shared with Revenue Canada. (N.B. Further detailed information can be found in this BC Ministry of Finance publication).
In conclusion, it is unlikely that any meaningful actionable data will be forthcoming, for another year at the earliest. Beyond that, it is questionable whether these measures will address the demand in some circles, for more across the board, affordable housing. That is likely to remain a City of Vancouver issue, to be addressed by creating a more efficient development regime to enhance supply.