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Canada Imposes 2 Year Ban on Foreign Buyers of Residential Property!

Canada Imposes Ban on Foreign Buyers of Residential Property Starting in January 2023

Starting in January 2023, foreigners won’t be able to buy homes in Canada for two years. This is to keep housing costs down for Canadians. Foreign buyers account for only a fraction of the housing market, and many foreign buyers, such as foreign workers, international students, and temporary resident status holders, will be exempt from the ban, leading some experts to question its efficacy.

Vacation homes like cottages and cabins, as well as homes in less densely populated areas, are exempt from the ban. Canada’s federal government has not conducted any economic modelling to foresee how the ban might affect the housing market or prices. According to the Canadian Housing Statistics Program, between 2% and 6% of homes in the five jurisdictions studied in 2020 were owned by non-locals. Canada intends to address the issue of affordable housing and prioritise the needs of Canadians, which includes enforcing the ban.

But some experts in real estate and housing policy aren’t sure how well the ban will work because foreign buyers make up such a small part of the housing market and because many foreign buyers will still be exempt from the ban. Foreign workers and international students who have lived in Canada for a certain number of years and shown that they want to become permanent residents will still be able to buy one property.

The ban won’t apply to homes in less-populated areas or to places like cottages and cabins that are used for recreation. Overall, the ban is part of Canada’s plan to deal with the problem of affordable housing and make sure that housing policy puts the needs of Canadians first.

But many real estate and housing policy experts aren’t sure that the two-year ban will have much of an effect on house prices, since non-resident buyers make up such a small part of the market and many will still be exempt.

I think this is very much a political policy, more than an economic policy,” says Brendon Ogmundson, Chief Economist at the British Columbia Real Estate Association. A lot of the public has been convinced over the last few years that it’s foreign investors and foreign money that are driving home prices, rather than what’s actually doing it: low interest rates and very low supply.

There is limited data tracking foreign home buyers and owners across Canada. In the four provinces and one territory that the Canadian Housing Statistics Program looked at in 2020, the most recent year for which data is available, between 2% and 6% of homes were owned by people who didn’t live there.

In British Columbia’s hot housing market, only about 1.1 percent of transactions in 2021 involved a foreign buyer—a drop from three percent in 2017, which the provincial government attributes to its taxes on non-residents, speculators, and empty homes. Ontario’s government says it has seen “a downward trend” in foreigners buying property since it began taxing non-resident purchases in 2017.

Regardless of the fragmentary information available, it shows that the percentage is actually pretty small when it comes to foreign buyers, says Vik Singh, an assistant professor in the Global Management Studies Program at the Ted Rogers School of Management at Toronto Metropolitan University. I think the government has to do something about housing, and it’s easier to pick out the foreign buyer as a target.

Finance Minister Chrystia Freeland declined multiple requests for an interview. In a statement, a spokesperson for Freeland said: Houses should be homes for Canadians to live in and not an investment asset for foreigners. The Canada Mortgage and Housing Corporation told CBC News that the government has not done any modeling that could show how the ban might affect the housing market and prices.

Who and what is exempt

Canadian citizens and permanent residents are exempt from the ban. Other prospective buyers face various different rules. International students and foreign workers are allowed to purchase one property as long as they have lived in Canada for a certain number of years, signaling their intention to become permanent residents. For workers, which means having worked in Canada for three out of the four years prior to buying a property, while students had to be present in Canada for 244 days each year for the five years prior to buying. International students cannot buy a property for more than $500,000.

Foreign nationals with temporary resident status, refugees, diplomats, consular staff, and members of international organizations living in Canada can also buy properties without further restrictions. Under the ban, non-Canadian entities, such as overseas corporations and foreign-controlled Canadian entities, will be banned from buying property. The rules only apply to residential properties with three or fewer dwelling units. There are also exceptions for residential properties in less-populated areas. Recreational properties, such as cottages, cabins, and other vacation homes, are exempt.

Non-residents who buy a home in contravention of the ban or realtors and lawyers who help them can face a conviction and be fined up to $10,000. The federal government can also apply to the superior court in the province where the home was purchased for an order to sell the property.

The Canadian Real Estate Association (CREA) has expressed its concerns about the impact of the ban on foreign buyers purchasing residential property in Canada. According to CREA, the ban may create additional costs and potential legal risks for realtors trying to determine the eligibility of buyers and properties. The organization also pointed out that the ban does not address other factors that can affect the housing market, such as low supply and high demand, which are major drivers of housing prices.

CREA stated that it will be monitoring the impact of the ban and will work with the government to address any issues that may arise.

In the last federal election in Canada, three of the main political parties made commitments related to limiting or heavily taxing foreign buyers who want to purchase property in the country. The aim of these policies was to temporarily limit or discourage foreign buyers in order to prioritize domestic buyers and potentially reduce increasing home prices.

The experience with British Columbia’s Foreign Buyer Tax (implemented in 2016) and the Speculation and Vacancy Tax (SVT) (introduced in 2018) suggests that such measures have a small and often temporary effect on real estate markets, housing availability, and affordability. These effects are largely isolated to large metropolitan markets and have no statistically significant impact on smaller communities.

On June 23, 2022, Parliament passed the Prohibition on the Purchase of Residential Property by Non-Canadians Act, which will come into force on January 1, 2023. This law applies to non-Canadians who buy a home in Canada directly or indirectly for a period of two years. It applies to residential property, like detached houses or similar buildings with one to three living units, as well as parts of buildings like semi-detached houses, condo units, or other similar premises. The Act also covers purchases of residential property that are made directly or indirectly through corporations, trusts, or other legal entities.

The Canadian Real Estate Association (CREA) and REALTORS® have pushed for all levels of government to take steps that will greatly increase the number of homes for sale. While the Act may have a modest impact on supply, CREA has recommended that the government include a CUSMA exemption, treat property owners from the US and Mexico in a similar way to Canadians to avoid a reciprocal response.

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