Many Canadians have heard about the two-year ban on foreign individuals from buying residential properties in Canada, but will it do anything to decrease record-high house prices? Or should some people just give up on their dreams of owning a house?
The high demand for housing during the COVID-19 pandemic led to an increase in home prices, reaching a national peak of $816,720 in February 2022. The average house price in Vancouver during the same month was $1,313,400, and $1,081,400 in Toronto.
The increased competition within Canadian housing markets resulted in multiple offers on properties and buyers assuming more risk. The idea of banning foreign buyers was meant to decrease the competition.
Although home prices have dropped since February 2022, housing affordability remains a concern for many Canadians, compounded by rising interest rates. It has led those with variable-rate mortgages to pay hundreds or thousands more per month compared to early last year. I have already seen the “insolvency courtroom” at the Vancouver courthouse busier than ever.
The Canadian Mortgage and Housing Corporation have introduced new legislation aimed at increasing affordability for those looking to purchase homes in Canada. The legislation targets foreign investment, which the CMHC believes has contributed to the high cost of housing in the country. I completely disagree that foreigners are the problem.
This is a typical example of politicians pretending to solve problems because of pressure from the public. In reality, Housing Minister Ahmed Hussen must know these policies will have little effect on housing markets, especially in cities with a small immigrant population.
Non-resident buyers make up a very small percentage of the Canadian real estate market. Therefore many buyers will still be exempt from the new real estate laws. Foreigners don’t even own a significant part of Vancouver or Toronto.
A recent survey found that roughly 2.4% of Toronto condos and 2.3% of condos in Vancouver were owned by overseas investors.
The British Columbia government attributes the decrease in foreign buyers participating in the housing market, from 3% in 2017 to 1.1% in 2021, to taxes imposed on non-residents, speculators, and empty homes.
Similarly, Ontario's government reports a downward trend in foreign property purchases since implementing taxes on non-resident purchases in 2017. Despite limited data, it is evident that the percentage of foreign buyers in the market is relatively small. The government's actions towards foreign buyers won’t make much difference in housing prices.
The true reason for high real estate prices
Part of my job as the CEO of ClearwayLaw is understanding supply and demand. The more people want something, and the less of it there is, the more it will cost.
It’s basic economics, there are more buyers than sellers, even with recent interest rate hikes. People with money want to live in nice cities, and property developers can’t keep up with demand.
For the most part, foreign buyers who leave their homes empty in Canada are not the ones that are driving house prices through the roof. The reasons were very low-interest rates (which no longer exist,) and a very low supply of housing, especially in markets like Victoria, Vancouver, and Toronto.
What the foreign buyer ban covers
The new foreign buyer rules are aimed at increasing affordability for those looking to purchase homes in Canada by targeting foreign investment, but there are many ways to be exempt from the rules. Those who are temporarily residing in Canada on work permits, as well as refugee claimants and international students who meet specific criteria, are still permitted to buy residential properties.
The ban does not affect Canadian citizens, permanent residents, or non-Canadians seeking to rent a residential property in Canada. Additionally, non-Canadians with a spouse or common-law partner who is a Canadian citizen, permanent resident, or refugee are also exempt from the ban.
Non-Canadians found to be in violation of the ban may be fined up to $10,000 and may be required to sell the property they purchased. Individuals who knowingly assist a non-Canadian in their property purchase can also be fined.
$10,000 is not much of a price to pay in order to invest in a market that has seen massive price increases over the past 50 years.
Many Chinese people are good at getting around red tape. For example, they were able to get millions of dollars out of China when moving more than $50,000 out of the country is illegal. I’m sure they will have no problem getting around the foreign buyer laws.
Alistair Vigier is the CEO of ClearwayLaw.com, an online legal marketplace that helps Canadians find the best real estate lawyers through a rating system. Also, reach out if you need a Realtor in Vancouver.