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Luxury market facing challenges amid foreign homebuyer ban

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The Canadian luxury real estate market has been experiencing a wave of challenges, particularly for high-profile professional athletes, executives, and global talent seeking to purchase homes in the country.

Despite recent amendments to the country’s recently enacted foreign homebuyer ban, allowing some work permit holders to purchase real estate, the impact of the ban, alongside provincial taxes, like Ontario’s 25 per cent non-resident speculation tax, persists.

Engel & Völkers’ 2023 Mid-Year Canadian Luxury Real Estate Market Report, highlights the potential friction these restrictions create for organizations attracting top-tier talent to Canada.


Unintended consequences of the foreign ban


The foreign buyer ban has caused uncertainty in the luxury real estate market. Jesse Dean Cook, an advisor based in West Vancouver with Engel & Völkers, points out that the ban might be affecting individuals such as tech CEOs, celebrities, and professionals from various industries, potentially limiting their ability to purchase properties in Canada.

He says the impact of this ban on the luxury market remains challenging to quantify, but anecdotal evidence suggests that it may be hindering some high-net-worth potential buyers.

“There’s a lot of people from LA moving to Vancouver, especially for all the tax credits and whatnot they’re getting for film and TV industries, so perhaps they are not able to purchase,” Cook says.

Cook said he’s come across a couple of clients who have been impacted by the new federal legislation. He shared he has a client from Los Angeles, connected with Netflix, who wants to buy a large estate that’s more than $10 million, and they’re in the process of getting their permanent residency.

“So they’ll be delayed about a year,” the realtor shared, adding that about five per cent of the client base is affected by this rule.

Cook also had a client from Milan, Italy, who wanted to purchase in Vancouver but had no way of doing so.

“(It) was an incoming lead from our office from one of my listings and wanted to purchase a place here in Vancouver and just had no idea that there was this foreign ban coming in. He couldn’t purchase it. I’ll be in touch with him if this ban ever lifts.”

For clients like that, is the industry shifting gears to accommodate some of these high-profile, high-net-worth potential buyers?

“It’s challenging. There’s not really much I can do. It’s not a tax.”


Inventory shortage impedes luxury market growth


Similar to the residential market, the luxury market is facing a scarcity of inventory, especially in the higher-priced segments. Cook observes that properties priced above $10 million are not as rate-sensitive, but the challenge lies in finding premium properties in prime locations.

Cook explains that rising construction costs and the practice of holding properties within families, akin to generational wealth in Europe, have led to limited options for affluent buyers. Additionally, the trend of downsizing to condos is slowing down.”

“We’re also seeing a lot of downsizers who perhaps in the past they were going to be selling their beautiful, luxurious home, move into a one-floor condominium, have a lot of money in the bank, and travel, they’re just not seeing as much positive going to a condo as they might have 10 or 15 years ago. We’re not seeing those properties come up.”

Cook said he wishes he could predict the future of the luxury market, adding, “It’s been a very interesting first six months.”


Uncertain future amid rising interest rates


The luxury real estate market in Canada has seen a rollercoaster ride in the first half of 2023. After a slow start in January, the market picked up momentum in the subsequent months due to factors such as Bank of Canada rate adjustments. However, unexpected rate increases in June and July caused buyers to pause, leading to decreased sales activity. While interest rates have influenced some segments of the market, the luxury sector has remained relatively resilient due to the limited inventory of high-quality listings. As the summer progresses, industry experts remain cautious about the fall market’s potential trajectory.

“It will be interesting to see what happens in September because, yes, interest rates are affecting a number of people, but they are also not affecting a lot of people, especially (those with a) higher net worth.

“At the end of the day, what we keep hearing, and not just within Canada, it’s a North American problem, is lack of inventory, and that’s why prices have remained quite flat this year because we’re just seeing quality listings come up. My crystal ball is telling me I just don’t see many coming this fall either.”

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