The arrival of the new year has brought with it a raft of new rules, regulations, restrictions and taxes for the mortgage and real estate industries. The one that has been getting the most attention is the federal ban on foreign property buyers.
Promised back in the April budget, it was finalized just 11 days before it was implemented. The federal government is touting the ban as a way to improve housing affordability for Canadians.
Non-Canadian entities, such as corporations, and foreign-controlled Canadian entities, will be banned from buying property. But there are doubts about how effective it will be.
There is limited data tracking foreign buyers and owners in Canada, the ban is in place for just two years, and there are numerous exemptions:
- International students who meet certain requirements, including having spent the bulk of the previous five years in Canada, would be able to purchase a property for no more than $500,000.
- Workers who have worked and filed tax returns in Canada for at least three out of the four years prior to purchasing a property.
- Diplomats, consular staff and members of international organizations living in Canada.
- Foreign nationals with temporary resident status, including refugees and people fleeing conflict.
- Buildings containing more than three dwelling units.
- Recreational properties, such as cottages, cabins and other vacation homes.
The government’s own numbers show non-residents play a small role in the country’s housing market. The Canadian Housing Statistics Program covers four provinces and one territory – B.C., Manitoba, Ontario, Nova Scotia and Nunavut. Its most recent figures date back to 2020 and show that between 2% and 6% of residential properties had at least one non-resident owner.
Information provided by Canada Mortgage and Housing indicates that the federal government has not done any modelling on the ban’s potential impact on home prices.
The New Zealand Experience
New Zealand implemented a foreign buyer ban in 2018. At the time 2.9% of homebuyers there were non-residents. Since then, the number has dropped to 0.4%, but home prices continued to soar. Like Canada, home price increases in New Zealand only turned around when interest rates started to rise, last year.
There are a number of real estate and housing policy experts, both here in Canada and in New Zealand, who call the ban a political policy, rather than an economic policy. Non-resident home buyers are a very small group and many of them are not eligible to vote. Therefore, they present a low political risk.
Mortgage professionals and realtors can expect to spend more time and, perhaps, more money checking a buyer’s eligibility to make a purchase and determining whether a property is residential or recreational.