During the pandemic, Canada, like many other nations, witnessed massive price hikes for both sales and rents as borrowing rates fell to historic lows, bringing inventories with them. During a contentious election campaign in 2021, Prime Minister Justin Trudeau’s Liberal Party of Canada took aim at a housing crisis that had turned into a political disaster. The appeal of Canadian properties is luring profiteers, wealthy businesses, and international investors. “Homes are for people, not investors,” a campaign website announced.
Following a tight election victory, the party secretly presented the Prohibition on the Purchase of Residential Property by Non-Canadians Act last spring, targeting foreign property purchasers.
The plan was in reaction to a popular political mood, but it “sounded crazy,” according to Jacky Chan, the Vancouver-based founder and CEO of BakerWest Real Estate, which advertises luxury high-rise residences across the country.
“As cosmopolitan as Vancouver and Canada are, there is a sense that Asians, foreigners, and immigrants are coming here, buying up real estate, consuming supply, and pushing up prices,” said Mr. Chan, who was born in Hong Kong and has lived in Vancouver for 29 years. “The majority of foreigners purchasing real estate are not speculators. They are immigrants who are purchasing properties to live in.”
Furthermore, regional governments were already addressing increasing property prices. The provincial government of Ontario increased the real estate speculation tax for foreign buyers from 20% to 25%. British Columbia imposed a 20% tax on foreign house purchasers. According to data from the British Columbia Ministry of Finance, foreign investment in real estate declined from a peak of 9 percent of residential sales in June 2016 to under 1 percent in June 2022. No developer in his right mind would ever consider targeting them, according to Mr. Chan. How does a ban make sense?
Prices have already begun to fall across Canada by mid-2022. However, the ban on foreign purchases was passed into law quietly in June. Indeed, it had largely gone unnoticed, even by many real estate specialists.
This was one paragraph in a document, said Julie Côté, senior manager of the FL Fuller Landau accounting firm’s real estate taxes practise for nonresidents. Then there was stillness. They never told the rest of the world what was going on.
Mr. Trudeau and other politicians have spoken nothing about the bill since it was approved, and local media outlets have given it limited attention. Trying to acquire information on this from the government has been a nightmare,” Ms. Côté added.
This might be because the bill has sparked xenophobic charges. As immigration levels in Canada reach all-time highs — census figures released in October indicated that immigrants now account for 23 percent of the population, with the great majority coming from India and China — some industry veterans believe there is a link.
Non-Canadians received a lot of the blame for the housing crisis, and it was a significant political issue, according to Brendon Ogmundson, chief economist of the British Columbia Real Estate Association. However, the pandemic cut off practically the whole section of overseas customers, and prices remained at an all-time high. That demonstrates that foreign purchases are not big market drivers, and the restriction will have no effect.
The Canadian Real Estate Association’s chief executive officer, Michael Bourque, headquartered in Ottawa, branded the bill “an insult to Canada’s identity as a friendly, multicultural society.”
“We’re telling them we don’t want them here,” he explained.
According to Alisha Ma, managing partner of the Hong Kong business Halcyon Counsel Limited, which helps clients come to Canada, the rule will have little influence on demand in important foreign-buyer markets like Hong Kong, where immigration to Canada is increasing. “Clients are ready to wait for permanent resident status, and because we’re in a high-interest-rate environment, there’s even more motivation to wait,” said Ms. Ma.
She emphasised, however, that the new legislation is intended specifically at “domestic vultures in Canada,” and that it is not discriminatory. “It is not in conflict with Canada’s friendly immigration policy,” she added. “They’re just closing the door on real estate investment.”
Federal officials declined to comment for this piece. Ahmed Hussen, the Minister of Housing, did not respond to demands for comment. Adrienne Vaupshas, a spokeswoman for Deputy Prime Minister and Minister of Finance Chrystia Freeland, said in an emailed statement that the law targets a tiny portion of speculators. “This policy forbids foreign commercial firms and individuals who are not Canadian citizens or permanent residents from acquiring nonrecreational, residential property in Canada,” Ms. Vaupshas wrote.
The government produced a limited set of rules, including exclusions and enforcement, on December 21, six months after the law was approved. They clarified that the ban only applies to “census metropolitan regions” and “census agglomerations,” or cities that satisfy specific demographic thresholds, and not to vacation houses in “recreational zones.” Buyers with Canadian wives or partners, refugees, and foreigners purchasing multifamily residences with more than three units are exempt (which could theoretically be rented to Canadians).
Scofflaws face fines of up to $10,000 Canadian if they are found guilty of “knowingly helping a non-Canadian in contravening the ban.” Infringing buyers may also be forced to sell the property for “no more than the purchase price paid.”
The regulations, according to some, went short of clarifying the intricacies of the legislation. “There are no significant clarifications,” said Stephen Cryne, president and CEO of the Canadian Employee Relocation Council, an organisation that advises businesses on workforce mobility.
Brokers argue the uncertainty has rendered them immobile. Rather of racing against the clock, most foreign purchasers will just wait for the rule to expire in two years. “My customers are stuck,” said Liza Kaufman, a founding partner at Sotheby’s International Realty Quebec in Montreal. “When they hear that even specialists are unable to obtain clarification on the law, they’ve decided to sit this one out.”
According to her, just one of her clients, an American retiree who declined to be interviewed, is “rushing” to purchase a Montreal pied-à-terre before the prohibition goes into force.
Though it exempts immigrants with residence status, the prohibition comes as Canada announces aggressive new immigration objectives aimed at filling roughly a million job openings throughout the country. Despite the fact that applications for permanent residency declined dramatically this year, the government has proposed admitting 465,000 new permanent residents in 2023 and more than 500,000 in 2025. “Look guys, it’s easy to me: Canada needs more people,” stated Sean Fraser, Canada’s Minister of Immigration, Refugees, and Citizenship, during a news conference to announce the targets.
However, Mr. Cryne believes the law might have the opposite effect. “This will frost people’s desire to relocate here, work here, and establish with their families,” he added.
Jenny Kwan, a member of Parliament from Vancouver East and the housing critic for Canada’s opposition New Democratic Party, claims the measure fails to address the true causes of the housing problem. “The government must target real estate investment trusts,” or for-profit real estate investment trusts, she said. “We must limit the financialization of housing.”
Some of these concepts are already in play, working in tandem with rising interest rates and inflation to curb price rise. This year, the Trudeau administration announced an anti-flipping tax to dissuade property speculators, as well as a “underused property” tax on overseas owners who leave their homes empty for more than 180 days each year.
The Canada Mortgage and Housing Corporation reported earlier this year that 3.5 million more homes would be needed to achieve affordability for all Canadians by 2030, but housing affordability campaigns “have focused on demand suppression, like our foreign-buyer taxes, and they’re politically favourable,” said Kevin Crigger, president of the Toronto Regional Real Estate Board, an industry association. “However, throughout the past decade, we have urged the government to examine supplies.”
For the time being, fewer overseas purchasers are canvassing the market in Canada’s major cities. According to Mr. Crigger, “foreign participation in the market is, at most, 3 to 6 percent” in Greater Toronto. “Even if it is so high, in the overall scheme of things, it is nonexistent.”
However, a fresh wave of overseas purchasers appears to be biding their time, eager to wait until the prohibition expires. After the first announcement in April, Pauline Aunger, a real estate broker with Royal LePage Advantage in Smith’s Falls, Ontario, said she witnessed a surge in purchasing activity. Clients, she added, have been waiting for direction but not purchasing since then: “It’s very much a wait-and-see situation.”