I'm sure you've heard of the Foreign Buyer Ban, but given the rollout of it, there hasn't been a lot of light shed by the Canadian Government. What is it? Who does it impact? Where does it apply? When will it take effect and for how long? And WHY? Well read on, as today I am attempting to address just that. I add my own comments at the end, and fair warning, while I try to not get political on our Website or blog - I did go a little political this time. I apologize in advance for the stronger opinions shared!
In recent years, the Canadian housing market has been experiencing a significant influx of foreign buyers, particularly in major cities. This has led to concerns about the affordability of housing for Canadian residents, as well as potential negative impacts on the overall economy. In response to these concerns, the Canadian government has implemented a foreign buyer ban. But what does this really mean?
The Foreign Buyer Ban went into effect January 1st, 2023. And here is what you really need to know:
- The Why: We are experiencing a housing crisis in Canada. Projections for the necessary amount of homes to be built by 2030 is 3.5 million in order to achieve housing affordability for everyone living in Canada. However, CMHC reports that we are going to be about 1.2 million units short given current rates of construction. Article can be viewed here: https://www.cmhc-schl.gc.ca/en/blog/2022/canadas-housing-supply-shortage-restoring-affordability-2030
- The Who: Who is impacted, you ask? Anybody deemed a non-Canadian. So if you are a Canadian citizen, a permanent resident of Canada or a person registered under the Indian Act, do not fret. You can continue on business as usual. However, if you are considered a foreign citizen, OR are a foreign corporation, then this will apply to you. BUT, there are exemptions
- If you are a non-resident but married to a Canadian Citizen, you are exempt
- If you are a refugee or someone with temporary resident status (some terms and conditions may apply)
- You have worked in Canada for a substantial period of time and filed tax returns in Canada for three out of the four years prior to purchasing
- An international student with similar stipulations to the above but you have to have spent most of the last five years in Canada. At which point you can buy a property up to $500,000.
- Some members of international organizations or diplomats living in Canada.
- There are actually more situational exceptions too, but these need to be evaluated on a case-by-case basis.
- The Where: Is not necessarily as clear. For instance, much of this ban is targeted for properties around metropolitan areas. In Manitoba, that means Winnipeg, Brandon, Portage La Prairie, Steinbach, Winkler and Thompson. Be careful though with what is defined by the act as a Metropolitan area. For Example, the Winnipeg Metropolitan area is considered to be as far north as Grand Marais, as far East as Nourse, as far South as Ste Agathe, and as far West as Poplar Point. Source: https://www150.statcan.gc.ca/g1/datatomap/index.html?action=wf_identify&value=%7b%27layers%27:%5b%7b%27values%27:%5b%272021S0503602%27%5d,%27id%27:%27S0503%27%7d%5d%7d
- The When: Thus far, it is only supposed to be a two-year policy.
- The What: it impacts a variety of real estate options including detached or attached houses, condominiums, or really any real property. HOWEVER, it does not impact the purchase of homes with 4 dwelling units or more.
The Government has enforced some strict policies to prevent those looking for ways to skirt the laws. Any Foreign Buyer caught to purchase a home during this period would be forced to sell the property. Also, any profits from the sale go back to the Federal Government. Any Realtor, lawyer, or mortgage broker that assisted in brokering the transaction would be fined $10,000. What this means for our clients? We are having all Buyers in the next two years fill out one additional form, confirming they are not Foreign Buyers. Otherwise though, it is business as usual.
My concerns about the policy, you ask? I think that these policies are short-sighted, and while they might alleviate some market pressures today, we are just kicking the can further down the road. The ban really only addresses the symptoms of a problem but not the underlying root cause – which is and always will be a lack of supply and affordable housing options. There are additional side effects to policies such as this:
- Much of the purchasers in Manitoba in new construction areas are newcomers to Canada. We have effectively removed incentives for many builders to continue to want to develop homes. The resulting negative from this is a decrease in new housing starts which has a negative impact on GDP.
- It will become more difficult for businesses to attract and retain employees. The Canadian Dream does not include renting, in my opinion.
- It does not address underlying issues.
- Decreases in foreign investment and economic growth as a result of decreased investment in Canada.
- An even bigger “bubble” in the market, two years out from now when the backlog of the Foreign Buyers wishing to get a foothold in the Canadian Real Estate Market, look to buy their piece of the pie.
There are opportunities to be had from this. Unfortunately, some of those are on the backs of those that have been disadvantaged from the policies. We have already seen rents increase in Winnipeg, this year. I would anticipate this trend continuing. People moving to Canada will still need nice, affordable places to move and these programs will put further strain on that rental market. I also think that there will be Foreign Buyers that look for more creative ways to own real estate here. Perhaps buying a four-plex (exempt category) with a goal of living in one unit and renting the remaining out. Where there is a will, there is always a way!
In my opinion, the Canadian Government wants something that fits nicely on a banner and can be accomplished within four years or less, given election cycles. The ban is going to end right when elections are upcoming, it was put out without much notice in December, right before Christmas.
Not a lot of thought appeared to go into it. I am not going to lie. I don’t have the right answer as to what the proper solution is – there truly is no silver bullet. However, if the underlying issue is that of supply and demand, I think there are policies that the Canadian Government should enact to encourage those to increase supply. Perhaps incentives to builders that are developing more affordable housing. What we really need, is more supply after all! Also, the painfully slow/rigorous process to get houses built is another hangup. We are often told of delays at permitting, infrastructure applications, etc. I do still think that it is important to have proper inspections – I don’t want homes being slapped up that are dangerous to live within. But what about next-day inspections instead of weeks or months out? We could save months upon months for the build process in Manitoba alone! Part of the problem is ultimately that the policies such as this take longer to enact and enforce. It is not the quick fix that politicians may be looking for. This appears to be more political theatre than assessing the core issues.
Read about the Act here: https://laws-lois.justice.gc.ca/eng/acts/P-25.2/page-1.html
If you prefer to digest this in a video format, here is the YouTube video I shot covering this topic:
This article was written before parts of the ban were repealled, so some of my concerns have now been addressed. However, plenty still remain. For information on what has changed, here is where you can read more: https://news2me.crea.ca/2023/march-2023/budget-2023/
While I will say this amendment is appreciated, it still feels like a whole lot of political theatre!
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