After property prices skyrocketed during the pandemic, Canada has passed a law that bans most foreigners from purchasing residential propety for two years. AFP
Canada is at the top of the list for hundreds and thousands across the world thinking of moving abroad. But some of those thinking of buying a home there might have to put their plans to hold. The North American nation has banned some foreigners from buying residential properties for two years.
Also read: Why Canada has emerged as one of the top choices for Indian immigrantsWhy a ban on buying houses?
A new law has come into effect on 1 January in Canada which restricts most foreign buyers from properties for investment for two years. This was done to help make housing more affordable to those living in the country.
However, the Prohibition on the Purchase of Residential Property by Non-Canadians Act comes with many exceptions. It allows immigrants and permanent residents of Canada who are not citizens to purchase homes. It also does not apply to students and refugees.
The prohibition applies only in “census metropolitan areas” and “census agglomerations” — basically, cities that meet certain population criteria — and not to vacation homes in “recreational areas”, reports The New York Times (NYT). However, the law does not apply to home buyers with Canadian spouses or partners and foreigners buying multifamily dwellings with more than three units.
The legislation was passed because of a big increase in house prices during the pandemic. There was a spike in sales and rentals as borrowing rates touched record lows thus affecting inventory.
Many politicians in Canada believe foreign buyers were responsible for this as they purchased properties as investments. The housing crisis became an election issue, something that Prime Minister Justin Trudeau promised to address during the 2021 election campaign.
“The desirability of Canadian homes is attracting profiteers, wealthy corporations, and foreign investors,” said the campaign website of Trudeau’s Liberal Party of Canada, according to a report on CNN. “This is leading to a real problem of underused and vacant housing, rampant speculation, and skyrocketing prices. Homes are for people, not investors.”
A spokesperson for Canadian finance minister Chrystia Freeland, said in a statement, “Houses should be homes for Canadians to live in and not an investment asset for foreigners.”
Also read: Explained: What is the Canada super visa and how will new changes benefit Indians?
Will the ban help bring down prices?
Many real estate experts believe that the ban on foreign buyers, who accounted for less than five per cent of home ownership in Canada, according to the national statistical agency, would not have the desired effect of making homes more affordable. Rather they point to a need for more housing construction to meet demand, reports the news agency AFP.
“I think this is very much a political policy, more than an economic policy,” Brendon Ogmundson, chief economist at the British Columbia Real Estate Association, told CBC News. “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.”
“I think the government had to do something [about housing], and it’s easier to pick out the foreign buyer as a target,” said Vik Singh, an assistant professor in the global management studies programme at Toronto Metropolitan University, adding that the percentage for foreign buyers is small.
Jenny Kwan, a member of Parliament who represents Vancouver East and the housing critic for Canada’s opposition New Democratic Party, said that the law was missing the real culprits in the housing crisis, reports NYT. “The government must target real estate investment trusts,” or companies that invest in real estate for profit, she said.
Campaigns around housing affordability “have focused on demand suppression, like our foreign-buyer taxes, and they’re politically favourable,” Kevin Crigger, president of the Toronto Regional Real Estate Board, an industry association told the newspaper. “But for the last decade, we’ve called on the government to look at supply.”
How bad is the housing crisis?
The situation is improving from what it was during the pandemic in 2020 and 2021.
The rise in home prices has reversed in 2022, reports CNN. The average price of homes has dropped by 13 per cent from the peak of above $800,000 in February, according to the Canadian Real Estate Association.
With the Bank of Canada raising interest rates, mortgage rates have gone higher.
The Canada Mortgage and Housing Corporation, the national housing agency, said in a June report that close to 19 million housing units will be needed by 2030, reports AFP. That means 5.8 million new homes must be built, or 3.5 million more than are currently anticipated to be built to meet that demand, it said.
With inputs from agencies
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