As the new year looms, the federal government has pledged to ban foreign homebuyers amid mounting pressure to make housing affordable for Canadians.
Foreign business firms and individuals will be banned from buying residential property in Canada for two years starting Jan. 1, 2023, in a bid to cool the speculative activity that has helped drive the country's real estate market to unprecedented heights over the past three years.
The ban, passed by parliament on June 23, is the cornerstone of Trudeau's plan to deal with Canada's busy housing market, which has been struggling with limited supply, leading to bidding wars, extreme buyer anxiety and soaring costs.
"Through this legislation, we’re taking action to ensure that housing is owned by Canadians, for the benefit of everyone who lives in this country," Housing Minister Ahmed Hussein said at a Dec. 21 news conference.
Here's everything you need to know about the ban.
What is the penalty?
Under the new rule, anyone who is neither a Canadian citizen nor a permanent resident is barred from buying residential real estate in Canada for two years beginning Jan. 1.
The ban also applies to non-Canadian business owners, which the regulations say will prevent them from circumventing the ban.
Non-Canadians who violate the ban will be fined up to $10,000 and may be ordered to sell their property under the legislation.
The impact of foreign ownership has been a hot topic in Canadian real estate for years. However, according to the Bank of Canada, there has been a growing focus on the impact of domestic investors, who have accounted for about one-fifth of purchases in recent years.
The Canada Mortgage and Housing Board released its 2020 condominium survey results in May 2021, stating that "the share of non-resident-owned condominium apartment units was in the low, single-digits in most of Canada’s largest centres."
Cities such as Vancouver, Toronto, Montreal and Ottawa have more than a 1% share.
"Related work from Statistics Canada also reports comparably low shares of non-resident ownership for cities surveyed in 2019," CMHC said.
Statistics Canada noted in its 2019 data that a non-resident owner is usually a non-owner. Non-residents own 15% to 20% of unoccupied units in Toronto and Vancouver.
“This suggests that non-resident ownership is concentrated in the secondary rental market. CMHC and Statistics Canada results combined suggest that in the secondary rental market, non-resident ownership is likely concentrated in newer and larger rental buildings,” CMHC said. “These buildings generally command higher market rents,” it added.
In October, Ontario also raised the non-resident speculation tax on real estate purchases by foreigners from 20 percent to 25 percent.
There are some exceptions, including those on temporary work permits, asylum seekers and international students who meet certain criteria.
According to law firm MLT Aikins, “refugees and non-Canadian individuals who purchase residential real estate with a spouse or common-law partner — provided that their spouse or common-law partner is a Canadian citizen, a permanent resident of Canada, a person registered as an Indian under the Indian Act or a refugee”—are also exempt from the ban.
What type of properties are affected?
According to CMHC's website, the ban applies to "residential property, which includes detached houses or similar buildings of one to three dwelling units, as well as parts of buildings such as semi-detached houses, condominium units, or other similar premises."
However, recreational properties such as vacation homes or lakeside cottages will not be subject to the ban, CMHC added.
The new law says that homes that are neither in a census cluster nor in a census metro area are exempt from the ban.
However, the impact of the ban remains to be seen, especially as the fallout from the Bank of Canada's rate hikes continues to weigh on the economy and inflation -- including food prices.
Some 41 percent of Canadians are putting plans to buy or sell a home on hold because of fears of a 2023 recession, according to a Re/Max poll this fall.
Last month, the real estate firm predicted that Canada's housing market would return to "balance" by 2023, with most prices rising outside the most expensive markets.
Source: With files from The Canadian Press and GlobalNews
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