Update: Canada Bans Foreign Buyers

Canada has banned foreign buyers from purchasing residential property for two years. The ban, called The Prohibition on the Purchase of Residential Property by Non-Canadians Act, which went into effect on January 1, 2023, is intended to help make housing more affordable for Canadians. The ban was slightly amended in March 2023 but is mostly unchanged.

The ban applies to all non-Canadians, including permanent residents, citizens of other countries, and corporations controlled by non-Canadians. There are a few exceptions to the ban, such as for foreign investors who are buying property for commercial purposes or who are immigrating to Canada.

The Canadian government passed the ban in June 2022. The government argued that the ban was necessary to address the rising cost of housing in Canada. In recent years, housing prices in Canada have skyrocketed, making it increasingly difficult for Canadians to buy a home.

The government believes that the ban will help to cool the housing market and make it easier for Canadians to buy homes. The government also hopes that the ban will discourage foreign investors from buying homes in Canada as a way to park their money. On this note, demand in 2023 has been lower in most Canadian markets 2023. However, prices are still rising due to restricted supply. There is a big question mark hanging over the cause of the 2023 drop in demand - if the foreign buyer ban or higher mortgage rates caused it.

The ban has been met with mixed reactions. Some people support the ban, arguing that it is necessary to make housing more affordable for Canadians. Others oppose the ban, arguing that making it more difficult for foreign investors to invest in Canada will harm the Canadian real estate market and the economy.

It is too early to say what the long-term impact of the ban will be. However, the ban is a significant policy change that could have a major impact on the Canadian housing market.

The Expected Benefits

Here are some of the expected benefits of the ban:

• The ban could help to cool the housing market and make it easier for Canadians to buy homes. Lower demand would lead to less intense bidding wars, allowing buyers to perform more thorough due diligence (e.g., home inspection) on what is typically their largest lifetime purchase.

• The ban could discourage foreign investors from buying homes in Canada to park their money. Every home bought by an investor is a home that could instead be bought by someone who intends to live in it.

• The ban could help to make housing more affordable for Canadians. Lower prices would make homeownership more attainable for Canadians.

Key Concerns

Here are some of the concerns that experts have about the ban:

• The ban could harm the Canadian economy by reducing foreign investment in Canada. In some markets, foreign investors are very active in real estate development pre-sales, helping to bankroll the construction of new housing stock.

• The ban could make it more difficult for foreign students and workers to live in Canada. While it’s not clear why opponents feel that students should own their student residence, we would like foreign workers to put down roots in their new hometowns. However, there are exemptions for students and temporary foreign workers who meet certain critera.

• The ban could be difficult to enforce. A determined rule-breaker could find ways to hide their controlling stake in a real estate investment. While this is true, it could also be said for most Canadian laws. Should we argue that speeding cameras aren’t worth the effort because someone could e driving on forged licence plates?

What’s Next?

It is important to note that these are just some potential benefits and concerns of the ban. The actual impact of the ban will not be known for some time.

Is there anything we can do about the prohibition on non-Canadians the purchasing of residential property?

Those who believe the ban is counterproductive can take heart in knowing it expires in 2025. Perhaps also begin to gather evidence of how investment in real estate has declined since the imposition of the ban, if that is the case. This might be made more complicated by very high interest rates and a potential recession. How do you isolate the impact of the ban from other factors influencing the market?

Those who are passionately in favour of it will want to begin advocating for it now. As well, gather evidence that the ban served its intended purpose. The ban only has 1.5 years of life remaining.