Canada's Foreign Homebuyers Ban - What You Need to Know Thursday February 2, 2023
Ian Walterhouse
Thursday, February 2, 2023
Canada's Foreign Homebuyers Ban - What You Need to Know
On December 2, 2022, the Privy Council passed an Order in Council confirming regulations related to the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the Act). The Regulation will come into force on January 1, 2023, along with the Act. Broadly speaking, the Act prohibits "non-Canadians" from purchasing any residential property directly or indirectly from January 1, 2023, to December 31, 2024.
The Act has come into affect as a result of the high levels of demand for housing throughout the pandemic which prompted average home prices to skyrocket. Competition within Canadian housing markets reached new levels, with properties often receiving multiple offers and buyers submitting purchase agreements with few terms and conditions, leading them to assume more risk.
Although average home prices in Canada have since dropped, housing affordability remains a concern among many Canadians. Rising interest rates are now fuelling some additional con cern. Those with variable-rate mortgages are already paying hundreds more per month, compared to early last year. Those with fixed-rate mortgages, who have yet to renew, also say they are worried about rising interest rates.
What are the Important Details of the Act?
According to the Act, a residential property includes detached homes or similar buildings, as well as semi-detached houses, rowhouse units, residential condominium units and other similar premises.
The legislation applies to residential properties that are located in a census metropolitan area or a census agglomeration, says the Canada Mortgage and Housing Corporation (CMHC). A census metropolitan area has a total population of at least 100,000 people, with at least 50,000 living in its core, while a census agglomeration has a core population of at least 10,000 people.
Why Did the Government Put this Ban into Effect?
According to the CMHC, the legislation aims to “make homes more affordable” for those living in Canada by cracking down on foreign investment.
In a press release on December 21, Housing Minister Ahmed Hussen said,
“Homes should not be commodities. Homes are meant to be lived in, a place where families can lay down roots, create memories and build a life together.”
Housing affordability continues to be a challenge in Canada. Although average home prices have dropped in recent months, an assessment published by the Parliamentary Budget Office in September shows the average cost of a house is 67 percent more than what the average Canadian household can afford.
The Government hopes that the Act, together with other relevant government policies such as the Underused Housing Tax Act, which recently received royal assent on June 9, 2022, will help to curb the perceived rising numbers of vacant houses owned by foreigners and real estate inflation. In addition, by limiting foreign investor activity among residential properties, market watchers expect the ban will create new buying opportunities for Canadians by opening up supply.
In a recent Remax outlook report, 54% of Canadians agree are supportive of the ban and believe that a two-year ban on foreign buyers will increase the supply of affordable homes for local buyers.
Bottom Line
The full impact of the Act will be clearer once the Government releases the draft regulations. The Act could face potential challenges from the provinces in the court system based on concerns about federal authority and division of power arguments. Only time will tell how this will actually impact the market. For now, if you have any questions we should connect.
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