QUICK HITS
- The Canadian government has released regulations ahead of a ban on non-Canadians buying residential property, which is set to take effect on Jan. 1, 2023.
- The regulations outline exemptions for temporary residents who meet certain requirements, including international students and those on work permits.
- CREA is expressing disappointment with the regulations, and is raising concerns on behalf of its members.
Days before Canada’s foreign buyer ban is slated to take effect, the federal government is releasing regulations that detail exemptions and attempt to define the role the real estate industry plays.
The Prohibition on the Purchase of Residential Property by Non-Canadians Act is expected to come into force together with the newly released regulations on Jan. 1 as an attempt, the government says, to improve affordability for Canadians looking to buy a home.
Under the new regulations, anyone who is convicted of knowingly helping a non-Canadian buy a property could face a fine of up to $10,000.
In a statement to Real Estate Magazine, the Canadian Real Estate Association (CREA) says it’s disappointed with the regulations released Wednesday and is raising several concerns on behalf of its members.
Who is exempt?
The rules outline several provisions for how the act will be enforced and detail exemptions for temporary residents who meet certain requirements. Canadian citizens and permanent residents are not included in the prohibition.
International students who have filed tax returns for the past five years and have spent the majority of the past five years in Canada are excluded. In addition, the purchase price of the residential property must not exceed $500,000.
Those who hold a work permit may also be excluded. They must have worked in Canada for a minimum of three years within the four years preceding the purchase and filed tax returns for at least three of the four years.
There are also exceptions for foreign nationals fleeing conflict and refugees.
The government estimates that the volume of non-Canadians that would be exempt and subsequently choose to buy a home is limited over the next two years. It calculates the number would be in the hundreds to low thousands.
If a non-Canadian wants to buy a property, the government says the onus is on them to demonstrate their eligibility and says they will be responsible for any costs associated.
Non-Canadian corporations
Non-Canadian and foreign-controlled corporations will not be allowed to purchase residential property in Canada. Under this act, a foreign-controlled corporation is defined as an entity that is three per cent or more owned by a non-Canadian.
“That’s a relatively low threshold,” says Chris Sharpe, a real estate lawyer and partner at Clark Wilson LLP in Vancouver. Sharpe believes this could catch companies that may have silent investors who are investing smaller amounts into projects.
The government’s regulatory analysis states there will be a minimal burden and costs for realtors because they already comply with existing regulations and standards related to customer identification and due diligence.
CREA disagrees.
One example the association gave was FINTRAC beneficial ownership obligations. Those require a realtor to identify any individual who owns 25 per cent or more of an entity. In contrast, the foreign buyer ban requires them to determine if the entity is three per cent or more owned by a non-Canadian, which could add additional costs and requirements to transactions.
CREA also notes that FINTRAC requires realtors to verify client identity at the time of a transaction rather than before assisting or advising clients as will be required under the foreign buyer ban.
The regulatory analysis clarifies that record keeping is not mandatory for realtors; CREA highlights that is also contrary to FINTRAC obligations.
“Without records, an individual charged with an offence pursuant to this act would have difficulty demonstrating that they made reasonable efforts to comply with this legislation in order to avoid a summary conviction and a $10,000 fine,” CREA states.
What about recreational properties?
Also seemingly exempt from the ban— homes outside of areas that meet certain population thresholds based on census analysis. That may include some recreational properties, but not all.
Sharpe explains that based on his understanding, the government has created an exemption for what he would describe as “very rural” residential properties.
He adds, “My real estate group here…and at all law firms and notaries and realtors across the country need to educate ourselves on where do we go to find the list of census metropolitan areas and census agglomerations?”
CREA is also raising questions about the process for determining whether properties are located in eligible areas.
Sharpe says, “It’s incumbent upon me to become well-versed in this and its application and turn my mind to how to protect and advise my clients. I think realtors would need to be doing the same.”
Jordana is the editor of Real Estate Magazine. You can reach her by email.
Exactly what percent of homes, rental units, condos, vacant land and condos were purchased in 2022?
Did the civil servants and politico’s obtain this data? If not what criteria did they base this decision on?
Do they recognize Canada’s real estate industry is by far our largest and most competitive industry and free market?
Did they consider that Canadians may be banned from buying properties in other countries?
We have a housing shortfall due to municipalities and regional governments limiting housing in their communities via regulatory controls and costs. More regulations are not the solution.
The solution is to stop roofing over farm lands and go up in the major population centers.
Suburban developers (domestic financing) are competing with hi-rise developers (foreign financing).
Are these foreign bans based on the domestic building oligopoly competing with foreign wealth funds?
Great government initiative to stop the dirty money from buying up homes at inflated prices and then they sit empty with no contribution to the local economy. The $10K fine should be raised to $100K. Way too many sleazy deals being done.
AGREE! It’s long due that we start looking after our own first, not the other way around.
Too often we ignore the fact that other influences affect “true Canadians who work and pay taxes”, help or helped build “their” country.
They (your children) a large part of current and future generations cannot afford to purchase a home due to the erosion of affordability by those who do not have a vested interest in what is “not their country”.
They buy, capitalize on a Canadian paying rent on their investment, and when they decide, they take their (our) money out of Canada.
No different than a Canadian working all their lives (40, 50 years), finally paid for their home and after retiring have to sell it to support the rest of their living years because the “CPP” ignores actual cost of living. Instead our government see supporting those who come into the country, never contributed a dime, and are being supported with better living than those who built it a better choice.
LET’S LOOK AFTER OUR OWN FIRST. Then help if, when and where we can.
This won’t do anything. Too many exceptions and workarounds. Great political headline though.
Does anybody really care ? This legislation is just smoke and mirrors for a situation that had zero relevance in the market place. Realtors shouldn’t lose any sleep over it so let’s stop posturing!
Most countries have some sort of punitive restrictions for foreign buyers. The U.S. certainly won’t turn off the tap to Canadian buyers and are likely pleased to see there own citizens invest at home.
Unfortunately, home ownership is not in the cards for everyone. No doubt, most who board, rent, live in an apartment, condo, or duplex would love a detached home.
To some extent, home ownership is a matter of choice and priority. What if prospective buyers chose a modest wedding instead of a grand event, tried boarding with friends to start, rented a modest flat, bought part of a duplex, accepted good used furniture from family and friends, bought a good used vehicle instead of a diesel 4 wheel drive truck, vacationed at a local provincial park or B&B instead of the Caribbean, or worked two jobs, or lived and worked in an affordable location. Why do I think these tactics may work?… because I have done every one of them and guess what … I own a home. And it took continued sacrifice to keep the home, especially when the normal interest rate went from 11.75% to 19%.
In many cases, granted not all, home ownership is out of reach due to an excessive lifestyle and not making sacrifices and making ownership a priority. A recent car commercial showed a first time buyer aged person saying …” I want my exciting new future now” and then jumping in a great looking yellow sports car that would make a good part of a home downpayment. Nothing wrong with buying that car, but the choice has been made so don’t complain about not affording a home…. rent somewhere and enjoy the car.
Now our government has decided to meddle in an area where they lack knowledge and try to make homes more affordable by limiting free enterprise by restricting foreign ownership. Our words imply we embrace a global economy but these actions say we don’t. Good or bad, we are involved in a global economy where no country can survive as an island.
There are plans to welcome over a million immigrants in the next few years …. Any idea where they are going to live? What might that do to home prices and rent costs? This gets more complicated if they are not allowed to buy a home, at least, not until they get their citizenship.
Yes, I have worked long and hard and still do contribute through work and taxes. I own a house that has made all the sacrifices worth it. Although government programs help buyers, some who deserve it and some who dont. I dont mind so much doing my part through increased taxes.
But here is my point …. I do not like the government’s misdirected attempt to reduce the value of my house so someone who has not made home ownership a priority, afford to buy it. Because I need to get as much as I can from the sale of my home so I can afford to travel to other countries to get health care.
Fair and valid comments.
Dave I agree with your comments about priorities. However you are wrong with your statement that new immigrants must be Canadians to purchase a home. That is factually untrue.
Dave, I enjoy encountering people like you whom have such misconceptions about the housing market. It makes me feel awesome when I make you look like a greedy selfish fool.
You believe people who prioritize a house purchase just need to ‘buckle down’ and sacrifice like you did and eventually they’ll achieve that goal.
Let’s analyze your situation. You mentioned 19% interest rates so the year is 1982. The average household income in Toronto 1982 was $52,689 according to the CCSD. The average home price in Toronto was $95,496 across all home segments. This is a ratio of 1.81. Assuming you need 20% down to qualify for a mortgage, you’d need to save $19,099.20 for a down payment. For someone as thrifty as yourself, I’d imagine you had that 4-5 years.
Now let’s look at a new home buyer today. In 2021 the median household income in Toronto was $106,000. The average price in Toronto across all market segments was
$1.095M in December 2021 as per TREB data. That ratio is 10.33. Assuming a downpayment of 20% or $219,000, I’d estimate that even someone like you would need 20 years to save for a down payment after all taxes and expenses are paid. But here’s the real kicker, the bank will not give you a mortgage more than 5x your gross income, or $530,000 in this case. So, our first time home buyers actually need a downpayment of $565,000, which would take them about 50 years to accumulate.
Put simply, if today’s housing market environment existed in 1982 when you bought your home, you’d still be ‘buckling down’ and sacrificing for your home till 2032. You can forget about retirement or ‘going to other countries to get health care’ because once you buy the house you’ll be responsible for a $530,000 mortgage.
The fact that you can scoff at the government’s efforts to reduce housing prices and get frustrated because your home value may drop from its 10x original worth, is disgusting. You’d rather have it where all of our children work like dogs for the next 50 years to buy an average home with maxed out mortgages so you can avoid using our free health care system.