This ban took effect on January 1, 2023 in Canada. This law has more disadvantages than advantages.
Three of the four major federal political parties proposed similar measures in the last election.
Note that foreign workers and foreign students seeking permanent residency will be allowed to buy homes.
The law excludes:
- Buildings outside of census metropolitan areas (CMAs);
- Buildings with 4 or more units;
- Vacant land.
Non-Canadians cannot circumvent the law by buying through a corporation or trust.
Notaries, real estate brokers and other professionals must inform their non-Canadian clients that they may be affected by this law. There is a fine of up to $10,000 for the buyer and any third party involved in the transaction. The government has the right to forcibly sell the property.
This ban on purchases by foreign investors reduces demand and thus contributes to lower prices, but the impact will be negligible. According to data compiled by JLR Real Estate Solutions, the share of foreign buyers in all real estate transactions in Quebec dropped from 1.1% in 2018 to 0.9% in 2019.
On the island of Montreal, the share of real estate transactions involving foreign buyers fell from 3.4% in 2018 to 2.6% in 2019. The share was 7.2% in Toronto in 2017 and 13.2% in Vancouver in 2016.
These figures don't just include non-Canadians. To better understand the situation, we need to remember that Quebec has made it compulsory to declare the nationality of buyers and sellers at the time of purchase as of October 1, 2020. Among other things, they want to know if the foreign buyer or a family member intends to live there.
Taxes for non-residents
Two provinces have adopted regulations aimed at reducing the number of purchases made by foreign nationals. This was a response to years of high home prices. But have these taxes had an impact on rising prices?
In 2016, British Columbia began levying a 15% tax on non-residents of Canada, which was later increased to 20%.
Ontario followed in 2017 with a 15% tax for the Toronto area. It increased the tax to 20% in 2022 and more recently to 25%. The tax now applies to the entire province.
On Jan. 1, 2022, the federal government imposed a 1% tax per year on vacant property owned by non-residents. The purpose is to encourage foreign owners to rent or sell vacant property.
A tax is preferable to a ban. Foreigners can keep buying and the government gets revenue.
What's the goal?
During the passage of the 2022 budget, Finance Minister Chrystia Freeland said a ban on foreign ownership was necessary to keep home prices in check. Instead, the Bank of Canada did it.
Since March 2022, after interest rates increased, property values are no longer rising and demand has dropped significantly. Prices have fallen. Surprisingly, the feds did impose a ban on foreigners once the market came to a halt.
Most of the blocked deals are for condominium purchases in downtown Toronto, Vancouver and Montreal. Many of these condos are rented to Canadians.
Canada has a reputation for being a welcoming country for foreigners. Canada is a safe, secure country with a solid and reliable banking system. Let's hope this image is not tarnished. This change in the law is complicated and confusing.
It looks like this ban will have very little effect on prices. A good program must be approved by recognized experts, and in this case, acceptance is questionable.
Fortunately, most CMHC programs are designed to increase the supply of housing. This is the direction we need to go from here.