Canadian Foreign Buyer Ban
January 2023 marks the beginning of a 2-year foreign buyer ban on real estate in Canada. This foreign buyer ban was introduced by the Canadian government in an effort to increase the housing supply for Canadians. In theory, the decrease in demand from foreign buyers should increase the supply available to Canadians resulting in a decrease in housing prices, but are there enough foreign buyers exiting the market to make a substantial difference in Canadian real estate markets?
What counts as a foreign buyer?
The Prohibition on the Purchase of Residential Property by Non-Canadians Act was passed on June 23rd, 2022, as part of the introduction of Bill C-19. In the context of real estate regulations in Canada, "non-Canadian" refers to individuals or entities who are neither a citizen of Canada, permanent residents or registered as an Indian under the Indian Act. For example, a person who is a citizen of another country and does not have permanent resident status in Canada would be considered a non-Canadian. Similarly, a company that is incorporated in another country and does not have a permanent establishment in Canada would also be considered a non-Canadian.
What are the exceptions to the act?
There are exceptions to the act that allows some non-Canadians to purchase property in Canada.
- International students who have been studying in Canada for at least five years and purchasing a property under $500,000.
- Temporary residents who meet conditions prescribed by the Immigration and Refugee Protection Act
- Individuals who are non-Canadian, purchasing property with their common law-partner or spouse who is considered Canadian under the Act.
With these exemptions in place this means people immigrating to Canada are still able to purchase real estate unrestricted in Canada. With record levels of immigration in 2022, a majority of these roughly 450,000 immigrants arriving in Canada are still eligible to purchase real estate.
For more information on what non-Canadian means, click here
What property purchases are prohibited
Along with the exemptions of non-Canadians in the Act, there are also different properties and areas that non-Canadians can still purchase. Non-Canadians are still permitted to purchase properties with 4 or more dwelling units. This foreign buyer ban is also limited to census agglomeration and census metropolitan areas. In terms of Vancouver Island real estate, this means that Nanaimo, and Victoria real estate areas are prohibited from foreign buyers, however areas such as Parksville and Qualicum are areas that foreign buyers can still purchase real estate. A map of the prohibited areas can be viewed here
What effect does this have on our real estate market?
There is much debate about the impact of the foreign Canadian buyer ban on the real estate market. Some experts believe it will help to stabilize the market, while others think it may worsen the housing crisis. As of June 2022, the Ministry of Finance stated that foreign buyer purchases in British Columbia account for about 1% of all real estate transactions. We can use this number as an average to determine how much of an effect the foreign buyer ban has on the Nanaimo real estate market. With 1103 single family homes sold in Nanaimo in 2022, 1% of these transactions equates to a total of 11 homes purchased by foreign buyers – less than one a month. The evidence suggests that one less sale a month in the Nanaimo real estate market will not have a big enough impact on supply and demand to make changes to the landscape of the real estate market in Nanaimo.
This isn’t the first time that the government has focused on restricting foreign investment in Canadian real estate. In 2016, foreign buyers accounted for 6.6% of all real estate transactions in British Columbia. As a result, the federal government introduced a tax on real estate transactions involving foreign buyers. Comparing the 2016 number of foreign buyers to today, we have already seen a drop in foreign investment.
With exceptions to the types of foreign buyers eligible to purchase homes in Canada and the number of properties outside of the census areas included in the ban, there are still opportunities for foreign buyers to purchase property in Canada. The low percentage of transactions currently taking place from foreign buyers will have a small impact on the supply and demand of real estate markets where the foreign buyer ban is in effect. What remains to be seen is if this ban will decrease the amount of immigration to Canada, slowing population growth and diminishing housing demand across the country.
Post a Comment