Published by: Geoff Smith           January 18, 2023

Governing Policies in Favour of Foreigners? Part 2

In the spring of 2019, before the Pandemic hit, I wrote an article about Governing Policies in Favour of Foreigners. Some Government numbers said only 4% of home sales were by Foreigners yet the seemingly more true numbers from that time had them much higher before the Foreign Buyers tax had foreigners playing whack a mole our real estate moving from BC to TO and then onto Montreal. Please read/re-read for context on the new Foreigner Ban on for 2 years on Buying Canadian Real Estate.

The Newly Implemented Two-year prohibition on certain groups of non-residents came into effect Jan. 1 Days before non-residents were banned from buying homes in Canada, the federal government announced a number of exemptions, including for many foreign workers and international students who plan to live in Canada long-term. The ban is part of a multi-level plan to make homes more affordable for Canadians.

From Jan. 1, non-Canadians will be prohibited from buying residential property for two years. The federal government announced the ban as part of its April budget, saying the measure would help improve housing affordability for Canadians.

Exemptions from the ban include:

Buildings containing more than three dwelling units, and recreational property — such as cottages, cabins and other vacation homes — will also be exempt.

Non-Canadian entities, such as corporations, and foreign-controlled Canadian entities, will be banned from buying property.

Helping 'transition' to permanent residency

The Canada Mortgage and Housing Corporation (CMHC) said foreign workers and international students who had lived in Canada for extended periods of time and were "demonstrably working toward permanent residency" would be allowed to purchase homes, as they might otherwise face "a more difficult or prolonged transition to Canada" with fewer housing options. This is all good as these people are part of the skilled labour we need to maintain strong backbone of future generations. It would be up to those individuals to prove they meet the requirements around the length of time spent in Canada, the agency said in a regulatory impact analysis statement accompanying the new rules.

Non-residents who buy property in breach of the ban, and anyone who knowingly helps them do so, can be convicted and fined up to $10,000, and courts will have the power to order that the property be sold.

Mixed views on ban

Official Government statistics show that Non-residents make up less than four per cent of residential property owners in most parts of the country, including Ontario and British Columbia, according to data from the Canadian Housing Statistics Program. But as we noted in the article above which at that time suggested only 2% the actual numbers were significant and much higher. To some it is clear what impact the ban might have on Canada's housing market, it will help pull out some steam and allow Canadians or future working Canadians to get in on home ownership and weed the foreign speculators out.

While some called for an "unmitigated prohibition" on non-Canadians buying residential property, others had urged a more targeted ban to avoid unintended consequences on the economy and labour market, CMHC said.

In a statement the Canadian Real Estate Association (CREA) said it is concerned realtors could face extra costs while trying to assess a buyer's eligibility or determine whether a property is classified as residential or recreational. This could see some murky waters with some much needed clarity from the government and clear definitions before too many muddled transactions take place. As a result, realtors are likely to require additional documentation from all prospective buyers, in order to avoid contravening the ban, CREA said.

This legislation was passed a day late and a dollar short in my opinion because of the big increase in house prices during the pandemic. There was a spike in sales and rentals as borrowing rates touched record lows thus affecting inventory and cheap monies flooded the marketplace.

Many politicians in Canada believe foreign buyers were responsible for this as they purchased properties as investments. The housing crisis became an election issue, something that Prime Minister Justin Trudeau promised to address during the 2021 election campaign. As usual this was the political blame game too little to late yet ignoring that most of the problem of overheated markets was created by deplorable economic policy of slashing interest rates blowing up the money supply fueling demand based on these economic windfalls and not on solid economic fundamentals that got way out of control. Now we see the attempted reconciliation of this failed policy and we will bear the brunt of this turn in course this year economically as a nation.

This quote from our Federal Government finally got something right: “This is leading to a real problem of underused and vacant housing, rampant speculation, and skyrocketing prices. Homes are for people, not investors.”

How bad is the housing crisis?

The situation is improving from what it was during the pandemic in 2020, 2021 and early 2022. The rise in home prices has reversed in 2022, reports CNN. The average price of homes has dropped by 13 per cent from the peak of above $800,000 in February, according to the Canadian Real Estate Association.

With the Bank of Canada raising interest rates, mortgage rates are in 2022 as previously noted.

The Canada Mortgage and Housing Corporation, the national housing agency, said in a June report that close to 19 million housing units will be needed by 2030, reports AFP. 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.

TD Economics has also changed its housing market projection for Canada to allow for greater sales and price falls in 2023, followed by a rebound in 2024. According to the bank, home prices in Canada will fall another 11% in 2023, after falling 22% since record highs in February. Sales will fall 16% next year.

TD predicts housing sales will bottom out 20% below pre-pandemic levels in early 2023 due to rising interest rates and exorbitant costs making home-buying impossible for most Canadians. TD predicts a housing market revival in 2024. The bank predicts 2024 home sales will rise 19% and prices will rise 6%. This analysis is in line with my earlier analysis above.

If you need to sell this year do it now before the influx of listings into the market starts and increased downward pressure resumes. 11% on a million dollar home is another $110,000 out of your pocket if this decrease materializes and you wait.