Ottawa offers details on new federal ban on foreigners buying homes in Canada

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Ottawa has unveiled details on how the two-year ban on foreigners buying homes in Canada will work. But real estate experts do not expect the new law to help Canadians access more housing.

The rules were unveiled with less than two weeks before the ban is set to go into effect Jan. 1. They include a narrow set of exemptions for foreigners to buy residential real estate such as recreational properties and housing with a minimum of four units.

The law takes effect after this year’s jump in borrowing costs slowed resale activity and triggered the sharpest drop in home prices since the global financial crisis.

Many Canadians were already priced out of the market when home values shot up during the pandemic’s real estate boom. Today, many do not qualify for a mortgage given the going five-year interest rate of above 5 per cent.

The Prohibition on the Purchase of Residential Property by Non-Canadians Act was unveiled in the federal budget in April when home prices were cresting near their peak and buyers were still able to qualify for a large mortgage. The federal Liberal government has said the ban would help stabilize housing and help ensure Canadians had more access to purchasing homes.

However, it is unclear that foreign buyers are still a major source of demand in the market. According to the B.C. government, the number of foreign purchases in the province dropped to 1.1 per cent of all residential sales in 2021 from 3 per cent in 2017. The Ontario government also cited a downward trend but said there is “no evidence available that foreign buyers are no longer actively impacting affordability” in the province’s housing market.

After the real estate boom in Vancouver and Toronto in 2016 and 2017, the provincial governments responded by imposing a tax on foreign real estate buyers. The B.C. tax came into effect in 2016 and Ontario’s non-resident sales tax was effective in 2017.

Real estate industry braces for foreign buyer ban

Meanwhile, data from the Bank of Canada show that domestic investors – who face no government restrictions – have become an increasing force in the market, accounting for one-fifth of home purchases by mid-2021.

The ban will have “a minimal impact on the ground, especially when much bigger factors like interest rates and market psychology are dictating real estate activity and prices right now,” said Robert Kavcic, senior economist with Bank of Montreal. “Foreign buying was a bigger issue back in 2016, 2017. But this latest run in real estate was fuelled by domestic buyers,” he said.

Vicky Huang, who runs a real estate brokerage that caters to domestic and foreign Chinese buyers, said foreign buyers have been on the decline since Ontario implemented its tax. Ms. Huang said a small group of buyers would temporarily be prohibited from buying. But she said they represented less than 10 per cent of her clients at her Bay Street Group brokerage. She said the ban would serve more as a psychological barrier for her clients.

The newly released regulations provide numerous carveouts for foreign buyers, such as allowing purchases of residential real estate outside of a census metropolitan area, or outside of a city with a population of at least 100,000, of which 50,000 or more live in the core.

Other carveouts include international students who are on their path to permanent residency and foreigners who are working in Canada with a work permit. Both groups must prove they have been living in Canada for a certain number of years, and they are not allowed to buy property if they already own Canadian housing.

International students must prove they are enrolled in an approved postsecondary school and are not allowed to buy real estate that is worth more than $500,000. In Toronto and Vancouver, the typical home price tops $1-million.

“The government has put forward reasonable exceptions to the prohibition which will enable temporary residents and other individuals building a life in Canada to pursue home ownership in their communities,” said Brittany-Anne Hendrych, a spokesperson for the Ministry of Housing, Diversity and Inclusion.

Cailey Heaps, a Toronto-based realtor who works with foreign and domestic clients, agreed on the ban’s lack of influence and said the main hurdles for her clients are the high mortgage rates, lack of inventory and concern that they are buying at the wrong time.

Up until Wednesday, the real estate industry was unclear how the new law would be implemented.

“They’re planning to drop that on us literally last minute,” said Jonathan Hacohen, partner with Kormans LLP law firm, which specializes in real estate transactions. “It’s supposed to go into effect Jan. 1 and they haven’t given us all the answers on it, which I think is preposterous,” he said.

Data on non-resident owners show that in 2020 they owned 2.2 per cent of residential property in Ontario and 3.1 per cent in B.C., according to the Canadian Housing Statistics Program. In Nova Scotia, the share was 3.6 per cent and in New Brunswick, it was 2.9 per cent.