The Canadian government has implemented a temporary ban on foreigners buying residential property for two years.
Trudeau Blames Canadian Housing Shortages on Non-Residents
Canadian housing prices had been rising since the start of the COVID-19 pandemic, with Trudeau’s party accusing foreign buyers of snapping up massive amounts of scarce homes as investments.Major buyer markets such as Vancouver and Toronto had already imposed taxes on non-residents and owners of empty homes.
“This is leading to a real problem of underused and vacant housing, rampant speculation, and skyrocketing prices. Homes are for people, not investors.”
The government later clarified in December that the new law would apply only to city residences and not to recreational properties such as summer cottages and that the ban would also include real estate company owners who are not Canadians.
Several exceptions in the act include certain categories of non-citizens, such as refugees, permanent residents, and those looking to rent.
Foreign Violators Face Strict Penalties
Corporations or individuals who violate the ban would be subject to a large fine, or even ordered to sell the property.“As set out under the Act, a non-Canadian that contravenes the prohibition, or any person or entity that knowingly assists a non-Canadian in contravening the prohibition, is guilty of an offence and liable on summary conviction to a fine of up to $10,000,” the act reads.
“The Act establishes that, if a non-Canadian is convicted of having contravened the prohibition, the superior court of the province in which the residential property to which the contravention relates is situated may, on application of the responsible Minister, order the residential property to be sold. Any judicial sale order would be at the discretion of the applicable court.”
If a foreign buyer is found in violation and is forced to sell the residential property, they may not receive more than the original purchase price.
“The Act also establishes that any such court-ordered sale will result in the non-Canadian receiving no more than the purchase price paid for the residential property. For greater clarity, the sale of a property in breach of the prohibition does not affect the validity of the sale.”
Another exception is granted to Canadian Indigenous tribes, who are partially exempted from the act.
Canadian Realtor Groups Object to the New Ban
However, the sudden rise in home prices between 2020 and 2021 was already on the decline in 2022, making the act unnecessary, according to the Canadian Real Estate Association (CERA), which is critical of the new law.CERA reported that average home prices in Canada were 13 percent lower from a peak of more than $590,000 at the start of 2022, to just over $465,000 in December.
The country’s real estate market has been cooling down, after the Bank of Canada aggressively raised interest rates to rein in high inflation, causing mortgage rates to spike.
The real estate association’s home price index is still 38 percent higher than at the end of 2019, but housing inventory is now back to pre-pandemic levels.
Several real estate analysts said that the ban on foreign buyers, who account for less than 5 percent of homeowners in Canada, according to government statistics, would have little impact on improving home affordability.
Retaliation Toward Real Estate Companies?
Meanwhile, the real estate association stated its concerns over the housing ban, even with exemptions for those intending to move to Canada, combined with the possibility of retaliation by the United States and Mexico.“Canadians purchase vacation and residential properties in many countries, but particularly in the United States,” according to CERA, which said Canadians are the largest foreign buyers of American properties, with most in Florida and Arizona.
“These provide Canadians with a place to spend the winter months and are a form of savings for Canadian retirees.”“If Canada places a ban on Americans owning property in Canada, we should expect them to respond in kind,” they continued.
CERA said that a better solution would be to address the need for more home construction to meet buyer demand.
That means at least 5.8 million new homes are needed to meet demand, or 3.5 million more than currently anticipated.