In an effort to address the growing housing affordability crisis, Canada enacted the Prohibition on the Purchase of Residential Property by Non-Canadians Act on January 1st, 2023. Commonly referred to as the “foreign home ownership ban,” this act significantly impacts non-residents looking to buy property in Canada. If you’re considering buying a home in Canada and are not a Canadian citizen or permanent resident, this ban might directly affect your plans.
What Does the Ban Entail?
The core idea behind the foreign home ownership ban is straightforward: it temporarily halts non-Canadians and foreign corporations from purchasing residential properties in Canada for two years. By restricting foreign buyers, the Canadian government hopes to open up the housing market for its citizens and residents, aiming to make homes more accessible amidst the ongoing housing crisis.
However, while the concept appears simple, the nuances of the act introduce a variety of rules, exceptions, and interpretations that could affect both potential buyers and sellers.
Who is Considered a “Non-Canadian”?
The act specifies that the following individuals are classified as non-Canadians and are prohibited from purchasing residential property:
- Foreign individuals who are not Canadian citizens
- People who do not hold permanent residency status
- Those not registered under the Indian Act of Canada
- Corporations that are privately held, not listed on a Canadian stock exchange, and controlled by non-Canadians
Non-Canadian corporations cannot directly or indirectly own more than 3% of voting shares or equity in Canadian residential property. However, certain exceptions exist, which include:
- Foreigners married to Canadian citizens
- Diplomats and international organization members living in Canada
- Refugees, temporary residents, and workers who meet specific criteria (e.g., those who have worked and filed taxes in Canada for at least three of the last four years)
- International students with a minimum of five years of Canadian residency, though their purchases are capped at $500,000
What Types of Properties Are Affected?
The ban applies to residential properties, which the act defines as buildings with up to three dwelling units. This includes:
- Detached homes
- Semi-detached houses
- Townhouses
- Condo units
Properties within metropolitan areas (cities with a population over 100,000) or census-defined agglomerations (areas with a core population of at least 10,000) are affected. However, rural properties or homes in areas with fewer than 10,000 residents are exempt from the ban.
If you’re eyeing vacation homes or large buildings with numerous units, you’re in luck: the ban doesn’t apply to cottages, lakehouses, or multi-unit residential buildings. Still, those who violate the rules may face a fine of up to $10,000 and could be forced to sell the property.
Why Did Canada Implement the Ban?
Housing affordability has been a growing concern in Canada, particularly in cities like Toronto and Vancouver. The Canadian government introduced the ban as part of its strategy to address skyrocketing housing prices by reducing competition from foreign buyers. This political move aims to prioritize local homebuyers.
However, it’s worth noting that foreign buyers make up a relatively small portion of the housing market. In major cities like Toronto and Vancouver, foreign ownership accounts for less than 6% of residential properties. Thus, while the ban might help slightly ease demand, experts are skeptical about whether it will have a meaningful impact on housing prices overall.
Will the Ban Increase Housing Supply?
While the ban is intended to increase housing availability for Canadians, its effects may be minimal. Non-resident purchases make up a small fraction of total real estate transactions, and economists argue that boosting housing supply would require more aggressive measures, such as building more homes and curbing speculative practices like house flipping.
Other measures, such as the new tax law that penalizes homeowners who sell a property within 12 months of purchase, aim to deter quick resales for profit and may have more of a direct impact on the market. Additionally, rising interest rates have already contributed to a market slowdown, making it harder for many to qualify for mortgages under the strict stress test regulations.
What Should Hopeful Homebuyers Do?
For those hoping to enter the Canadian housing market, patience may be key. Rising interest rates and a cooling market could create opportunities, even as the ban affects some prospective buyers. Keep an eye on housing prices, as high mortgage rates are likely to keep demand subdued in the near term.
While the foreign buyer ban is a temporary measure, its long-term impact remains to be seen. For now, understanding the rules and preparing your finances to pass the mortgage stress test are crucial steps to take. The housing market may continue to evolve as other regulatory measures are introduced, but the ban should not be viewed as the new permanent norm.
By understanding how the ban works and being proactive about changes in the market, homebuyers can still navigate Canada’s complex housing landscape with confidence.
Key Takeaways:
- The foreign home ownership ban affects non-residents and foreign corporations, preventing them from purchasing residential property in Canada for two years.
- There are several exceptions, including for diplomats, refugees, and workers who meet certain criteria.
- The ban only applies to properties in metropolitan and urban areas, leaving rural properties exempt.
- Experts question whether the ban will significantly impact housing affordability, as foreign buyers account for a small percentage of the market.
