Canada’s new foreign buyer ban will take effect on Jan. 1, 2023, with a whisper rather than a bang.
Like most experts, at IQI Canada we believe the ban will have only a small effect on transaction volume. When it comes to price trends, the impact will be almost entirely negligible.
For years, Canadian champions of housing affordability have rightfully called for policies that would make housing more accessible. And for years, most policies actually implemented have done nothing of the sort.
The new foreign buyer ban is poised to repeat this history. There is, however, a silver lining. The ban may finally convince Canadians that foreign buyers are not the cause of high housing prices. The RBC, Capital Economics and other experts were convinced years ago that foreign buyers aren’t the source of Canada’s high prices.
We also have more recent evidence. Our recent Canadian property price boom occurred as foreign investment plummeted due to the pandemic. If foreign buyers are responsible for high prices, how can prices rise so high when foreign investment falls so low?
If foreign buyers aren’t responsible for the ban, then what is their role in our market? To understand foreign buyers, you have to know what you mean by the word “foreign.”
Many think most foreign buyers are wealthy individuals living overseas who buy up Canadian houses and apartments by the handful — only to leave them empty and unoccupied.
That’s wrong. The days of this kind of offshore foreign buyer have been over since Toronto’s, and Vancouver’s foreign buyers’ taxes came into force four to five years ago.
Official data shows that foreign buyers account for only one per cent to three per cent of the market in Canada’s three biggest metro areas. And that data dates from before the pandemic. The current share is likely even lower.
Despite their only ghostly presence in the market, the new ban targets only these offshore foreign buyers.
But what kind of foreigners are actually buying property in Canada? The answer to that is simple: immigrants, students and ex-pats.
IQI offices around Toronto work with many buyers from overseas. They are from the Middle East, Europe, and Asia. And they all have one thing in common: they intend to live in the property they are purchasing. They have permanent residency, and most are in the process of becoming future Canadian citizens.
It’s interesting to speculate how things might change if the same level of our government that sets our immigration targets were also responsible for our zoning policies. Then, we might see the creation of new housing supply to match the growth in our population.
It’s true population growth dropped to just 0.5 per cent during the height of the pandemic. That’s the lowest rate on record, going back about 50 years.
Today, though, Canadian population growth is bouncing back. Why? It’s because of a flood of newcomers. They are not arriving via the maternity wards but rather the airports.
The country welcomed more than 400,000 immigrants in 2021, the most immigrants in a single year in Canada’s history, according to the government. Between 2022 and 2023, 1.3 million more people are expected to arrive in Canada.
International students are also returning in large numbers.
These are the kind of foreign buyers we want in Canada. They are studying in our universities, starting companies, contributing to our economy, filling our government coffers with their taxes, and raising families.
Whatever happens to the housing market next year, I know that, as Canadians, we will all get through it together.
Yousaf Iqbal is director IQI Canada, the Canadian arm of real estate technology group Juwai IQI.
Yousaf Iqbal’s excellent description of state of foreign buyer influence in the housing market is so very well written, and so obviously grounded in fundamentals, there is little to no room to argue it. Indeed, the statistical observations and described anecdotal experience/information likely resonates as aligned with the knowledge of most real estate professionals.
Its simplicity, frankness, observation of real time circumstances, and historical description of the failure of foreign buyer regulation (save, perhaps for the municipal regulations) leads to but one question: why is it these perspectives are not self evident to elected leaders?
In addition, the number of investor buyers (all types) will be very low during the two years following Jan 1, 2023.
It’s a ban (on nothing, affecting no one) that was For Show since it was initiated by the ButtSvengali-Singh coalition for inclusion in the 2022 Budget Omnibus bill C-19
I think to truly understand the impact of foreign buyers you need to “follow the money” Canadian citizens, Canadian corporations, permanent residence, etc; purchasing homes with funds that are not their own, from outside Canada increases the percentage of “foreign” ownership. Creative peole will find a work around to the new rules as they have the existing rules.
If you think foreign buyers make a negligible impact on housing price inflation then stop worrying about the ban. I’m sure you’re aware of investors within Canada buying houses knowing that demand will protect their investment and that they also has the effect of inflating the price. We also need to stop investment companies from buying single family residences and causing the inflation the foreign ban is intended to address.
If foreign buying is so negligible as so many always argue, why the level of angst when a foreign tax is implemented or increased. We hear the “foreign buyers” make up a small percentage of buyers with some “low” percentage expoused as “only”, but in a tight supply situation that exists in Canada at the margin any amount makes a huge difference and puts pressure on prices. Canada isn’t the only country trying to limit the amount of “foreign” ownership or speculation as other countries such as Switzerland, New Zealand and Australia to name some that have implemented various restrictions as well. Those jurisdictions want their first time buyer citizens to be able to afford homes. Real estate shouldn’t be considered an asset class like stocks and bonds to be bought and sold as an speculative investment. There is limited supply and any speculation foreign or domestic should be taxed accordingly. Next generation Canadians should be able to afford to buy a home and not worry about always competing with deep pocketed speculators foreign or domestic.
My two cents!!
I am sorry, but Yousaf are you employed by Juwai???. His title is:
Yousaf Iqbal is director IQI Canada, the Canadian arm of real estate technology group Juwai IQI.
Does anyone have any actual details on how this legislation will be rolled out?
I have reached out to lawyers, accountants, real estate boards and organizations, and no one has any details on how this ban will be enforced.
If a foreign cash buyer wishes to purchase a property – who is responsible to confirm their citizenship status? The buyer’s agent? At what time? What happens if this is not done? Are there fines? Will the deal be cancelled and at what point? Does a listing agent need to confirm whether the buyer on the offer is a citizen and how would they do that?
Way more questions than answers at this time that no one seems to be discussing.
Such a good point here!
Hi Willemina,
All great questions. REM is looking into them and you should see an update in the coming days.
Best,
Jordana
jordana@realestatemagazine.ca
Sounds great. Thanks Jordana
Facts are well presented and it’s also important that Canada doesn’t lose out on foreign investments to other countries such as Australia, UAE Etc