Amendment to Canada’s Foreign Buyer Ban – Real Estate Canada Reacts!
Last month, the Canadian government introduced a few amendments to the Foreign Buyer Ban, AKA Prohibition on the Purchase of Residential Property by Non-Canadians Act. This article gives you a look at the Act and why it was introduced, the amendments and how Real Estate Canada is adapting to the legislation.
This Act, which came into effect on January 1, 2023, is also known as the foreign buyer ban and was initially introduced to improve housing affordability for Canadians. However, the Act faced criticism from real estate organizations, including the Canadian Real Estate Association. As a result, the government introduced amendments to address these issues and improve the effectiveness of the legislation.
The government believes that the amendments to the regulations will help support non-Canadian individuals and families seeking to purchase residential property.
Why was the Act Introduced?
During the 2019 federal election campaign, three major political parties in Canada made promises to limit or heavily tax foreign buyers who want to purchase property there. Although the commitments differed slightly, the aim was the same – to temporarily restrict or disincentivize foreign buyers to prioritize domestic buyers and control rising home prices. The goal was to make the market fairer for Canadians and prevent foreign buyers from using homes as commodities to be traded.
Starting from January 1, 2023, the ban on new foreign ownership of residential property became law, preventing non-Canadian citizens or permanent residents from purchasing residential real estate for two years. During this period, the government has promised to work with provinces and local municipalities to develop a framework to regulate the role of foreign buyers in the housing market and ensure Canadians’ housing availability and usage.
Reactions to the Ban
In addition to the foreign ownership ban, a new tax law took effect on January 1, affecting home sellers who have owned their property for less than 12 months. Such sellers will not be eligible for the principal residence exemption. Their capital gains would be fully taxed as business income unless they sold their home for reasons like separation, work relocation, disability, or death.
According to economists and real estate professionals, the new foreign ownership ban may not significantly impact the Canadian housing market since non-resident purchases represent only a small portion of the overall transactions. Increasing the housing supply and curbing house flipping are other tactics that could address the availability and affordability of housing.
The effectiveness of a foreign buyer ban can also be observed by looking at the impact of British Columbia’s Foreign Buyer Tax and the Speculation and Vacancy Tax (SVT), introduced in 2016 and 2018, respectively. These measures have had a limited and temporary impact on the real estate market, housing availability, and affordability, with their implications concentrated mainly in large metropolitan areas.
Changes to the Act
The following changes have been announced with effect from March 27, 2023,
- Non-Canadian individuals with a valid work permit can now purchase their first primary property without needing to provide a history of tax filings or work experience, as long as their work permit has at least 183 days left and they do not own any other properties in Canada.
- Non-Canadians can now purchase empty land zoned for residential or mixed-use and use it for any purpose, including building a house.
- Non-Canadians can now buy residential properties for development purposes, enabling the construction of more housing units.
- The limit on non-Canadian ownership that would restrict a corporation from residential development or investment has been raised from 3% to 10%.
Summary
The Canadian government has recently lifted some restrictions on foreign homebuyers to allow newcomers to own homes and help increase the housing supply. This move is expected to help newcomers put down roots in Canada through homeownership while also assisting businesses to create jobs and build homes by contributing to the housing supply in Canadian cities.
However, many in the industry believe that the ban is unlikely to impact the nationwide issue of housing affordability, and some view it as nothing more than a political gesture. While it remains to be seen if individual Canadians will benefit from these changes, developers are expected to benefit from the amendments to the foreign homebuyers ban. As high-interest rates continue to cause a slowdown in the market, potential homebuyers should keep an eye on prices and ensure they can pass the mortgage stress test before making any decisions.
Considering the recent amendments to the foreign homebuyers’ ban and the increasing rental prices in Canada, buying a house sooner rather than later might be the right idea.
However, to ensure you make an informed decision, before looking at Brampton homes for sale, you should seek guidance from a knowledgeable real estate brokerage.
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