Yahoo Finance Foreign homebuyer ban discouraging international athletes, executives from investing in Canada
Canada’s foreign homebuyer ban is discouraging non-Canadian athletes and executives from investing in the country, which is one reason for the current sluggish pace of luxury home sales in Toronto, according to Engel & Völkers Canada.
Toronto’s once-booming market for properties priced between $10 and $20 million has cooled significantly, with such homes now taking an average of 112 days to sell, compared to just 40 days a year ago. Engel & Völkers said the foreign homebuyer ban is a primary factor behind the shift, as those purchasers were traditionally the primary clientele for the lucrative market segment.
Ottawa last December unveiled the Prohibition on the Purchase of Residential Property by Non-Canadians Act, which went into effect for two years starting Jan. 1, 2023. Any violation of the ban results in a fine of $10,000, although there are certain exceptions.
The primary objective behind the act was announced in the Liberal government’s Budget 2022 and summarized on its website.
“As a temporary measure to help stabilize the housing market coming out of COVID-19, we will ban foreign money from purchasing a non-recreational, residential property in Canada for the next two years, unless this purchase is confirmed to be for future employment or immigration in the next two years,” the Liberal government said on its website.
“This will also allow us to work with provinces and municipalities to develop a framework to better regulate the role of foreign buyers in the Canadian housing market so that this money does not deter housing from being available for and used by Canadians.”
Shortly after the regulation came into effect, it underwent several amendments to provide exceptions to allow certain types of temporary workers to buy homes despite their non-citizen or non-permanent resident status.
The prohibition on the purchase of vacant land was also lifted, enabling non-Canadians, including foreign investors, to buy vacant properties for potential development purposes. Commercial entities seeking to invest in residential properties for development purposes were also granted an exception.
In implementing the ban, the Government of Canada said it had consulted with government partners, stakeholders and Canadians to develop the regulations.
No low-income family is going to be impacted by a $2-million sale in Toronto
Larry Mohr
But Larry Mohr, chief operating officer and license partner of Engel & Völkers Ottawa Central, said it provided advice opposing the ban on properties in the luxury market.
“In our submission back when they were taking submissions last summer, we suggested that they set a cap on the price so that properties over, say, $1 million that would not be subject to the ban because the purpose of the policy was to free up housing for affordable housing for low-income families,” he said.
“No low-income family is going to be impacted by a $2-million sale in Toronto or a $2-million sale in Ottawa. No low-income families are in the market for that property. So, you’re really distorting the luxury end of the market when there’s really no need to do that.”
Although some professionals may qualify for exemptions from the foreign homebuyer ban, they still face challenges due to provincial taxes. For example, Ontario imposes a non-resident speculation tax of 25 per cent, which, according to Anita Springate-Renaud, broker of record and license partner at Engel & Völkers Toronto Central, dissuades many professionals from investing in real estate while working in Canada.
“The whole jumping through hoops has made it very cumbersome and expensive to buy,” she said. “Even if you hire a lawyer to wade through all that, that’s also an added expense. Why would someone deal with that when you can go to another country and not have to do any of that, and where you’re welcome?”
The ban’s consequences also extend beyond the real estate sector since it could potentially create friction for companies hoping to attract top-tier global talent to Canada, Springate-Renaud said. High-net worth professionals, who were once drawn to the idea of investing in Canadian properties, are now left with no choice but to rent during their stay, as purchasing a home becomes financially unfeasible.
“We have a lot of athletes and executives who are renting as opposed to buying because, first of all, even if they have their work permit, the speculation tax is a huge knot in the process,” she said. “At least in Toronto, you have to have your deposit, your four-per-cent land transfer tax, and your 25-per-cent speculation tax all upfront.”
Springate-Renaud said she believes that instead of purchasing these properties, people are increasingly opting to rent them, resulting in a significant impact on Toronto’s already limited rental housing availability.
“The trickle-down effect is becoming highly evident and is exacerbating the challenges in our rental market,” she said.
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Mohr also said the situation could have serious repercussions beyond real estate, and even lead to potential retaliation from Canada’s trading partners, which might adversely affect Canadians and harm the country’s reputation on the global stage.
“It’s just not a good look for Canada as a small open economy and a trading nation,” he said. “If a similar policy was implemented against Canadians, for instance, if Florida came out and said we’re not gonna allow foreigners to buy residential real estate in our jurisdiction, there would be an outcry from Canadians. Yet, we think nothing of Canadians imposing the same restriction on them.”
• Email: shcampbell@postmedia.com
