Explained: Why Canada Has Temporarily Stopped Foreigners From Buying Property?

Canada has banned some foreigners from purchasing residential property for two years in the country. During the 2021 election campaign, Prime Minister Justin Trudeau proposed the temporary two-year measure at a time when rising home prices had made homeownership unaffordable for many Canadians.

Housing crisis in Canada

In a June report, the national housing agency Canada Mortgage and Housing Corporation stated that close to 19 million housing units will be required by 2030. It stated that to meet that demand, 5.8 million new homes must be constructed, or 3.5 million more than are currently anticipated to be constructed.

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An increase in home prices has reversed in 2022. The Association reports that the average home price has decreased by 13% since February when it reached a high of more than $800,000.

Further, mortgage rates have increased as a result of the Bank of Canada's interest rate hikes.

Why can't some foreigners buy houses?

On January 1, Canada enacted a new law that prohibits most foreign buyers from buying properties of investment for two years. the step was taken to make housing more accessible to people who live in the country.

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The act was introduced during the pandemic when the prices of houses significantly increased and borrowing rates fell to record lows, inventory was affected, which resulted in an increase in sales and rentals.

A few exceptions in the act

However, there are several exceptions to the Prohibition on the Purchase of Residential Property by the Non-Canadians Act. It permits immigrants and permanent residents of Canada to purchase homes. Also, it does not apply to refugees and students.

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According to The New York Times, the ban does not apply to vacation homes in "recreational areas," but rather to "census metropolitan areas" and "census agglomerations," which are basically cities that meet certain population criteria. However, foreign buyers of multifamily homes with more than three units and homebuyers with spouses or partners in Canada are exempt from the law.

Will it help the government?

According to the national statistical agency, foreign buyers account for less than 5% of home ownership in Canada. As a result, many real estate experts believe that the ban would not have the desired effect of making homes more affordable. They rather emphasize the requirement for additional housing construction to meet demand.

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Brendon Ogmundson, chief economist at the British Columbia Real Estate Association, told CBC News, ¡°I think this is very much a political policy, more than an economic policy, A lot of the public has been convinced over the last few years that it¡¯s foreign investors and foreign money that are driving home prices, rather than what¡¯s actually doing it: low-interest rates and very low supply.¡±

Jenny Kwan, MP, Vancouver East and the housing critic for the opposition New Democratic Party in Canada, stated that the law did not address the real causes of the housing crisis. The "real estate investment trusts," or companies that invest in real estate for profit, must be targeted by the government.