Foreign buyers cannot buy homes in Canada for two years due to a government ban designed to cool the country’s overheated market. Average prices soared more than 50% during the past two years, to more than $868,400 (in Canadian dollars), according to the Canadian Real Estate Association.
Along with blocking most foreign buyers and non-Canadian companies from purchasing residential real estate, the government is imposing higher taxes for people who sell their home within a year, plus other measures in hopes of curbing speculation and demand.
When Finance Minister Chrystia Freeland unveiled the federal budget for the year, she announced billions for new housing and actions to help Canadians who are trying to become homeowners. The measures include a new savings account and changes to the first-time homebuyers’ tax credit.
Exceptions are extended to permanent residents and foreign students. Exemptions are also made for recreational properties (although they are not defined) and temporary workers.
Freeland’s announcements follow previous efforts to tamp down sales to foreign buyers. In 2016, British Columbia imposed a 15% tax on home and condominium purchases by foreign buyers. Earlier this year, Ontario raised its own tax to 20% and extended coverage to the entire province.
Some economists and industry experts are dubious about the impact the latest bans might have. Some suggest it could create new problems.
In an interview with Bloomberg, Simeon Papailias, a finance expert and the president/co-founder of real estate investment firm REC Canada stated, “I don’t think a two-year Band-Aid is going to have an impact on what’s a fundamental lack of supply.”
Tsur Somerville, an associate professor at Sauder School of Business at the University of British Columbia, and a specialist on real estate economics is one skeptic. In an interview with journalist Ian Austen, who is a Canada correspondent for The New York Times, Somerville said the housing prices increase during the pandemic contradicts assumptions underlying the ban.
The pandemic made it difficult for foreign buyers of real estate to get to Canada, the UBC professor noted, adding that the previous two years is when house prices have had their largest increase the past decade.
Another professor, Gilles LeVasseur, from the University of Ottawa, believes provisions of the bans that discriminate against people based on nationality run afoul of the Canadian Charter of Rights and Freedoms, which forms part of the country’s Constitution.
Austen also quoted U.S. Congressman Brian Higgins, who follows cross-border issues. Higgins, whose district includes portions of Erie and Niagara counties, said he raised issues about the real estate bans with officials in Washington and during a meeting with Prime Minister Justin Trudeau, suggesting it goes too far. He contends “It violates the U.S.-Canada-Mexico Trade Agreement” by discriminating against American and Mexican buyers.
Somerville thinks priced-out buyers in Canada shouldn’t get their hopes up too much because of the latest bans. In the interview with the NY Times journalist he stated, “It always feels like everyone wants some magic solution that comes at no cost to them and makes housing affordable,” he said, adding, not wholly seriously: “The way to make housing affordable is to cut housing prices by 50 percent. But that kind of leads to a couple of other problems in the macro economy.”