Ban on buying a foreign home: what it could mean for markets where the new rules don’t apply – National
Ottawa’s latest efforts to keep foreign buyers out of the domestic housing market and keeping more inventory for Canadians comes with some loopholes that real estate players say could entice international investors to put their money in rural areas.
The two-year ban imposed by Canada non-resident buyerswhich came into effect on January 1, does not apply to all buyers, all types of goods or all markets in the country.
Canada’s ban on foreign homebuyers comes into effect on January 1. Here’s what you need to know
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For example, the federal government confirmed in legislation introduced late last year that the ban on non-resident buyers does not include recreational properties like cottages.
Although this was clarified in December, the initial announcement of the ban in April 2022 might have been enough to entice potential buyers to enter the market before the ban became legal.
A Royal LePage survey of US buyers living in border states in November 2022 shows that three-quarters of those who own recreational property in Canada bought after the federal government announced the ban on April 7 of the same year . Some 77% said the potential impacts of the ban influenced their decision to buy before the end of 2022.
Pauline Aunger, official broker at Royal LePage Advantage Real Estate, said in a statement accompanying the survey that the strength of the U.S. dollar and the relative affordability of vacation properties in Canada compared to those south of the border are making the market Recreational country attractive to both investors and vacationers.
“With its world-class ski resorts and scenic winter landscapes, Canada will remain a top location for leisure shoppers around the world,” she said.
Canadian real estate “for sale”
Chris Alexander, president of Re/Max Canada, told Global News that Canada is “on sale” against the United States with its weaker dollar. This is one of the “multiple reasons” the country attracts foreign investment, he says, in addition to the stability of Canada’s banking and political system.
A ban on purchases in major cities pushing international investors into recreational properties “could stimulate demand” in those markets, Alexander says.
Toronto-based Century 21 real estate agent Pritesh Parekh told Global News in an email that investors seeking exposure to the Canadian real estate market could try to shift their residential investment strategy to recreational properties.
“If buyers re-allocate to recreational properties, we are essentially opening up unnecessary new challenges for Canadians who want to buy such properties only to then have to compete with foreigners,” he said.
Global News contacted Housing Minister Ahmed Hussen to ask why these exemptions were granted and received a response from Canada Mortgage and Housing Corporation (CMHC) on his behalf.
CMHC said the temporary ban was put in place to ensure “housing is used to house Canadians, instead of speculative investment by foreign investors.”
But the agency also said that following consultations with industry stakeholders, it defined the exemption in light of the “significant role that the purchase of recreational properties by non-Canadians plays in many small communities.
However, Rishi Sondhi, an economist at TD Bank, is unsure whether the ban on foreign buyers will have a big overall impact on Canadian markets.
He says the heavy taxes on non-resident buyers already put in place in British Columbia and Ontario have likely already “clawed out” most international buyers from those markets.
the latest data available from Statistics Canada shows that in 2020, 2.2% of homes in Ontario and 3.1% of those in British Columbia were owned by non-residents, representing over 100,000 units in Ontario and approximately 54,000 units in British Columbia. British.
Ownership by non-residents increases to 5.0% of condominium units in Ontario and 6.1% of condominiums in British Columbia
Given the clear preference for condos to date, Sondhi says it’s uncertain whether those buyers would leave this market for cottages and other recreational investments.
“You wouldn’t expect a huge amount of foreign money to come into these markets as a result of this policy because it wasn’t really a case before the policy,” he says, adding that it It is demand from domestic buyers that has driven prices higher on recreational properties during the COVID-19 pandemic.
Small towns could attract international investors
The ban on foreign buyers also only applies to cities of a certain size: large municipalities called census metropolitan areas (CMAs) as well as census agglomerations, which generally means a city with a core of at least 10,000 inhabitants.
For realtors in Prince Edward County (PEC), a popular wine region and tourist destination in Ontario that has seen a flurry of business during the pandemic, there is a gray area in the new rules.
Tammy Noyes-Bryant is a real estate agent with Century 21 in Picton, Ontario, a town of just under 5,000 people. Although the population can exempt the area from the ban on foreign buyers, the larger PEC is incorporated as a single municipality, which Noyes-Bryant says creates confusion among local industry that needs help. a “clarification” from the government.
“If I were a buyer’s agent, I would strongly suggest that any foreign buyer hire a lawyer who is knowledgeable about reviewing their purchase and sale contracts,” she says.
Although Noyes-Bryant says PEC lacks the pre-construction condominium market that overseas buyers have traditionally turned to, she argues the area offers a growing opportunity for those looking to park international cash. .
PEC’s tourist attractions have made it a hot spot for short-term rentals like Airbnbs in recent years, but she says regulations clamping down on these types of properties have limited that business case.
She says she’s been much more active on the property rental side of late, as landlords find opportunities in long-term leases in PEC amid a boiling rental market in Canada.
“I think there are opportunities there for foreign buyers,” she says.
Beyond simple investment, areas like PEC and neighboring Quinte can be increasingly welcoming as destinations for immigrants looking to get their start in Canada, says Noyes-Bryant.
While traditionally newcomers would have headed to big cities for language and other settlement services, she notes that many Ukrainian and Syrian refugees have recently been welcomed into the small-town life the areas offer. rural areas with the benefit of remote services to help them acclimatise.
The hot recreational market could cool down in 2023
While international investors are boosting business in recreational markets and rural areas, experts say other forces could be slowing activity in these areas.
While many housing markets across the country cooled and saw price declines through 2022 as the Bank of Canada raised interest rates, the recreational market continued to grow in many locations.
Royal LePage said in November that the median price of a detached recreational home in Canada rose 15.1% to just over $1 million in the first 10 months of 2022.
Alexander says this segment was an outlier because there was “very low inventory” in the recreational market and “consistently high demand” from buyers. He believes Canadians remained apprehensive about international travel amid the COVID-19 pandemic and sought to invest in the country for their vacations.
For areas like Prince Edward County, Noyes-Bryant says she has seen stocks and days on the market rise in recent months, but prices have not retreated from their pandemic highs.
There’s always demand from buyers who want to be part of the PEC but either missed the initial wave or were intimidated by the multiple-bid frenzy of the past few years, she says.
Royal LePage says larger inventory and reduced competition in the recreational market could drive median prices down 3.0% year-over-year in 2023.
Alexander says he expects the cabin and cabin market to remain busy in 2023, but not necessarily with the fervor of previous pandemic years.
With fears of a recession hitting the economy in 2023, he notes that recreational properties are often the first to go when cash is tight and Canadians feel the pinch of rising mortgage costs.
Alexander also predicts that some buyers who embarked on cottage life at the height of lockdown restrictions may rethink their plans and return to town as in-person work returns and town centers come alive.
“I think people who have made the decision to be in the recreational markets full time, some of them might decide it’s time to move on,” he says.
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