Will Canada’s real estate become more affordable due to the ban on foreign buyers? Not necessarily

Starting this year, certain foreign buyers will be not allowed to purchase residential property in Canada under the new rule which, according to the federal government, should improve housing affordability.

However, many experts doubt that the two-year ban will have a significant influence on real estate prices, as non-resident buyers account for a small share of the housing market, and many of them will be pushed out of it.

“In my opinion, it’s more a political policy, than an economic decision,” – noted Brendon Ogmundson, chief economist at the British Columbia Real Estate Association.

“Many have been convinced during the previous few years that it’s foreign investors and foreign money that are pushing home prices, and not the combination of low interest rates and restrained supply.”

We have only limited data on foreign buyers and owners in the country. In the four provinces and one territory surveyed by the Canadian Housing Statistics Program in 2020, 2-6% of residential properties had at least one non-resident owner.

In case of British Columbia’s hot real estate market, only about 1.1% of sales in 2021 involved a foreign buyer, which is less than the 3% reported in 2017. The provincial government explains this decline by its taxes on non-residents, speculators and empty homes. According to Ontario’s government, there’s “a downward trend” in foreigners buying homes since it started taxing non-resident purchases in 2017.

Finance Minister Chrystia Freeland rejected requests for an interview, and her spokesperson said: “Houses should be homes for Canadians to live in and not an investment asset for foreigners.”

The report by Canada Mortgage and Housing Corporation says the government has not developed a scenario of the ban’s potential influence on the real estate market and prices.

The ban doesn’t apply to Canadian citizens and permanent residents, while other buyers face different rules.

International students and foreign workers can buy one property if they have lived in Canada for a certain time, meaning they plan to become permanent residents.

Workers need to work in Canada for three out of the four years before the real estate purchase, while students need to be present in Canada for 244 days each year for the five years before buying. International students are not allowed to purchase a property for more than $500,000.

The ban doesn’t apply to foreign nationals with temporary resident status, refugees, diplomats, consular staff and members of international organizations living in Canada.

Non-Canadian entities, e.g. overseas corporations and foreign-controlled Canadian entities, can not buy homes in Canada.

However, the ban only applies to residential properties with three or fewer dwelling units, with certain exceptions for less-populated areas. Recreational properties (cottages, cabins, and other vacation houses) are also exempt.