Monday 6 February 2023

Canada Bans Most Foreigners From Buying Homes

Canada’s ban on foreign homebuyers is now in effect, barring commercial enterprises and individuals outside of Canada from buying residential properties in the country.

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Q REPORTS –  A ban on foreigners buying residential property in Canada took effect Sunday, January 1, 2023, aiming to make more homes available to locals facing a housing crunch.

Several exceptions in the act allow individuals such as refugees and permanent residents who are not citizens to buy homes.

A realtor’s “for sale” sign is posted outside a home in Toronto, Canada

In late December, Ottawa also clarified that the ban would apply only to city dwellings and not to recreational properties such as summer cottages.

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The temporary two-year measure was proposed by Prime Minister Justin Trudeau during the 2021 election campaign when soaring prices put home ownership beyond the reach of many Canadians.

“The desirability of Canadian homes is attracting profiteers, wealthy corporations, and foreign investors,” his Liberal Party said in its election plank at the time.

“This is leading to a real problem of underused and vacant housing, rampant speculation, and skyrocketing prices. Homes are for people, not investors.”

Following their 2021 election victory, the Liberals quietly introduced the ‘prohibition on the purchase of residential property by non-Canadians act.’

Major markets such as Vancouver and Toronto have also introduced taxes on non-residents and empty homes.

Despite a recent heyday, the country’s real estate market has cooled for sellers as mortgage rates followed the Bank of Canada’s aggressive monetary policy in a bid to rein in inflation.

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According to the Canadian Real Estate Association, average home prices have fallen from a peak of more than $590,000 at the start of 2022 to just over $465,000 last month.

Many experts have also said the ban on foreign buyers — who accounted for less than 5% of home ownership in Canada, according to the national statistical agency — would not have the desired effect of making homes more affordable.

Rather they point to a need for more housing construction to meet demand.

The Canada Mortgage and Housing Corporation (CMHC) — the national housing agency — said in a June report that close to 19 million housing units will be needed by 2030.

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That means 5.8 million new homes must be built, or 3.5 million more than are currently anticipated to be built to meet that demand, it said.

Skyrocketing prices

High levels of demand for housing throughout the COVID-19 pandemic prompted average home prices to skyrocket, hitting a national peak of CA$816,720 in February 2022.

Competition within Canadian housing markets also 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. Fuelling some of this anxiety are rising interest rates. 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 “terrified” of rising interest rates.

As the foreign homebuyers ban takes effect in Canada, here’s what you need to know about the regulations.

Which properties are included in the ban?

According to the Prohibition on the Purchase of Residential Property by Non-Canadians 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.

The regulations also apply to vacant land that does not have any livable dwellings but is zoned for residential or mixed use.

Homes in municipalities with a core population of less than 10,000 are not subject to the ban, nor are recreational properties such as cottages and lake houses. Additionally, the law does not explicitly ban the purchase of larger buildings with multiple units.

Why is the ban in effect?

According to the CMHC, the legislation aims to “make homes more affordable” for those living in Canada by cracking down on foreign investment.

“Homes should not be commodities,” Housing Minister Ahmed Hussen said in a press release issued on Dec. 21. “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.

A separate report published by Re/Max in September also points to a housing supply crisis in major Canadian metropolitan areas. By limiting foreign investor activity among residential properties, market watchers expect the ban will create new buying opportunities for Canadians by opening up supply.

Despite this, statistics from the CMHC released in 2017 show foreign buyers owned a small percentage of residential properties in different Canadian cities. Additionally, real estate experts have offered mixed reactions to the regulations when it comes to the impact they will have on Canada’s housing market.

Who is exempt from the bank?

Although the legislation targets non-Canadians, there are some exceptions. Those in Canada with temporary work permits are still allowed to buy residential properties, as are refugee claimants and international students who meet certain criteria.

The ban does not apply to those who are Canadian citizens or permanent residents, nor does it apply to non-Canadians who are looking to rent a residential property in Canada.

Non-Canadians with a spouse or common-law partner who is a Canadian citizen, permanent resident, person registered under the Indian Act or refugee are also exempt from the ban.

What happens to those who break the rules?

Non-Canadians who violate the ban can be fined up to CA$10,000 and may be required to sell the property they purchased. Those who knowingly assist a non-Canadian with their purchase can also be fined.

With files from Voice of America and The Canadian Press

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