Canada’s foreign buyer ban explained

You may have heard it in the news, but now it’s official. As of January 1st 2023, the foreign buyer ban is in place in Canada. The foreign buyer ban prohibits non-residents of Canada from purchasing residential homes for 2 years starting in 2023. The aim of the ban is to ease pressure on the housing market caused by foreign investors and make homes more affordable for Canadians.

Previously, it was possible to purchase residential property in Canada from nearly anywhere else in the world, as is common with many real estate markets. It’s likely you know someone who owns a vacation property in another country like the U.S. for example.

Let’s take a look at what exactly the foreign home buying ban is, who it affects, and what impact it could have on the housing market going forward. 

What is the Canadian foreign home buyers ban?

Officially named the “Prohibition on the Purchase of Residential Property by Non-Canadians Act” the ban prohibits non-Canadians from purchasing residential property in Canada starting in 2023. Non-Canadian in this context specifically refers to anyone not either a Canadian citizen, or permanent resident of Canada. As of January 1st 2023, neither new-builds or resale properties can be purchased by individuals who aren’t permanent residents or citizens of Canada, and the ban is Canada-wide.

Key to note is that this ban is on all property sales going forward, and is not retroactive. Those who already own property in Canada are not forced to sell their units.

The federal government has announced that the ban will be in place for 2 years starting from January of 2023, but whether this period will be extended is unknown. It’s likely that this will only be a temporary measure if the real estate market cools and housing affordability drops on voters list of priorities. On the other hand, if the ban is seen as a success it’s possible the government may decide to extend the ban further out than 2025.

Who is exempt from the ban?

It’s notable that there are a few exceptions to the ban that some have pointed out may be able to be exploited by foreign investors or may lessen the effect of the ban on the market. 

Exemptions include international students who have spent 5 or more years in Canada, temporary foreign workers, and foreign residents such as refugees and diplomats. Another key exception is the purchase of “recreational” properties such as vacation homes and cottages.

Also exempt from the ban are residential properties with more than 3 dwelling units, meaning large multi-unit investment properties are still fair game.

In communities such as Reddit, some have complained about other “loopholes” such as using puppet-corporations to purchase property, however the ban includes corporations which are owned by non-Canadian residents. The government is adamant about enforcing the ban despite the concerns, and those who are found to be breaking the rule could be fined $10,000 and will be forced to sell the property.

How will the foreign buyer ban affect the housing market? 

The decision to ban foreign buyers was made in response to the growing affordability challenges in the housing market, particularly in major cities such as Toronto and Vancouver. A perceived increase in foreign buyers in these areas has led many to blame part of the issue on speculative investors from countries such as China, where wealthy real estate investors are seen as increasing demand in an already strained market.  The federal government has said that this ban will help to ease the pressure on the market and make it more accessible for Canadians to purchase a home, but just how much impact will it have? 

If you’ve been waiting on the sidelines for a massive housing market correction, unfortunately it’s unlikely that this new ban will have a significant impact on the market in the long-term. Outside of major cities, foreign-owners represent a tiny fraction of the demand in the Canadian housing market, and in the most sought after markets the percentage of foreign-buyers is still less than 10%. In down-town Toronto and Vancouver for example, foreign-owners account for 8% and 7.6% of residential properties respectively. The housing market has been trending downwards since the Bank of Canada started raising interest rates in 2022, and it’s likely that this trend will continue until inflation starts to cool. With that being said, it isn’t likely that the foreign buyer ban will contribute significantly to the market, as supply is still low in many areas.

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