2 Year Ban On Foreign Homebuyers By Federal Government

There is now a 2 year ban on foreign homebuyers in Canada. In June 2022, parliament passed a ban on foreign homebuyers which came into effect on January 1, 2023.  Under the 2 year ban on buyers, commercial enterprises and individuals located outside of Canada are prevented from buying residential real estate across Canada. 

Ultimately, the legislation is aimed at curbing rising real estate costs across the country as the average home price in Canada reached a peak of over $800,000 by February of 2022.  As competition within housing markets continue to grow throughout the COVID-19 pandemic, Vancouver real estate agents noticed home buyers were forced to accept riskier terms and conditions on their purchase agreements in addition to unprecedented housing costs. A foreign buyer ban was one of the solutions to ease this problem.

On the heels of the pandemic, housing prices have begun to drop in part because of rising inflation costs but housing affordability continues to be a major concern for Federal and Provincial governments. 

Indeed, with inflation there has been a significant increase in interest rates and Greater Vancouver home owners have seen their variable-rate mortgages increase by several hundred dollars per month in some cases.  Even homeowners with fixed-rate mortgages anticipate steep increases in their monthly payments when it comes time to renew their mortgage.

WHY IMPOSE A 2 year BAN on foreign homebuyers?

With all that in mind, the Federal 2 year ban on foreign homebuyers is intended to make homes more affordable by preventing foreign investment from driving up housing costs.  Through the ban, the Federal Government is sending the message that homes are not commodities to be traded. 

Housing affordability poses a major threat to financial security of Canadians and their families with one recent report indicating the average cost of a home is nearly 70 per cent more than what an average Canadian can afford.  Combined with a housing supply shortage in Canada’s major urban centres, the Government seems to believe that curbing foreign investment should stem rising housing costs by increasing supply and limiting the purchase of homes purely for investment sake.

Jacob your top Vancouver realtor, feels it is unclear whether this 2 year ban on foreign homebuyers will have the desired effect.  According to the Canadian Mortgage and Housing Corporation (CMHC), foreign ownership of residential properties represents a significant minority. 

WHICH PROPERTIES Types ARE AFFECTED?

To highlight what properties are affected through this ban on foreign homebuyers, let’s look at the details. The ‘Prohibition on the Purchase of Residential Property by Non-Canadians Act‘ legislates all residential properties including detached and semi-detached homes, rowhouses and townhouses, condominiums, strata units, and other similar properties. 

According to this Act, the ban on foreign homebuyers impacts residential properties in metropolitan areas with a population of at least 100,000 where at least 50,000 people live in the area’s core.  Additionally, the ban also applies to “census agglomerations” which are census subdivisions with a core population of more than 10,000.  For example, in British Columbia communities such as Chilliwack, Penticton, Squamish, and Vernon are considered census agglomerations.  Obviously, homes for sale in Greater Vancouver neighbourhoods will be impacted as well.  Finally, the ban would also apply to land that does not contain a habitable dwelling but is zoned for residential or mixed use and located in either a census metropolitan area or census agglomeration.

ARE THERE EXEMPTIONS FROM THE 2 Year BAN ON FOREIGN HOMEBUYERS?

First of all, when it comes to property definitions, the Act does not protect residential properties outside municipalities with a population of less than 10,000 people.  Recreational properties such as cabins, lake houses, and cottages are likewise exempt. 

With respect to individuals, there are also exemptions.  For example, non-Canadians with temporary work permits, refugees, and international students may be exempt from the foreign buyers’ ban.  Canadian citizens or permanent residents living abroad are also exempt from the ban.  And finally, non-Canadians with a spouse or common-law partner that is a Canadian citizen, permanent resident, person registered under the Indian Act, or a refugee is free to purchase residential property across Canada.

Individuals found breaking the rules are subject to a maximum $10,000 fine and may also need to sell the purchased property.  Real estate agents or others who knowingly facilitate a non-Canadian purchasing real estate are also subject to fines.

WILL THE BAN ON FOREIGN HOMEBUYERS WORK?

Experts in the real estate industry including many Vancouver realtors are skeptical that the ban on foreign homebuyers will have the intended effect.  Not only does foreign investment in residential property represent a very small stake in the housing market, there are also protections in place already.  For example, in British Columbia, a foreign homebuyer tax was implemented in 2016 effectively eliminating the foreign buyer market.  But as mentioned, even before this tax and the recent ban, non-resident home ownership was low.  In British Columbia, approximately 4 per cent of residential properties were owned by foreigners as of 2020.  In Ontario, that number is significantly lower at 3 per cent. 

Additionally, efforts to minimize rising housing costs have met with limited success.  In reviewing the Greater Vancouver real estate market, the foreign buyers’ tax demonstrated a temporary price effect but within 2 years housing prices in the region continued to set records.  During the pandemic when international travel was heavily restricted and foreign investment naturally decreased, home prices likewise continued to rise and Vancouver properties reached peak prices.

As such, local real estate agents point to the impact of domestic investment in real estate as the major driving force behind rising costs and that the focus on foreign investors is simply a distraction from the real problem that allows the government to appear dedicated to solving the housing crisis.  In fact, the 2 year ban on foreign homebuyers may prevent foreign development investment which will further limit supply and may actually result in further increases in housing costs.

If you want to learn more about how the changing legislation of the 2 year ban on homebuyers affects you or the market for housing in Greater Vancouver, contact Jacob who is licensed with Oakwyn Realty.  He has 2 decades of experience with buying and selling real estate in the Greater Vancouver area, and he’s poised to answer all your questions.