Foreign homebuyer ban discouraging athletes, executives from Canada

By
Millicent Wong
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financial contribution

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One reason for the currently sluggish pace of sales of luxury real estate in Toronto

Published on July 31, 2023 • Last updated 11 hours ago • 4 minutes reading time

A luxury home in Whistler, BC A luxury home in Whistler, BC Photo by Engel & Völkers Canada

Canada’s foreign homebuyer ban discourages non-Canadian athletes and executives from investing in the country, which Engel & Völkers Canada says is one of the reasons for the current sluggish pace of luxury home sales in Toronto.

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Toronto’s once-booming market for real estate priced between $10 million and $20 million has cooled significantly. It now takes an average of 112 days to sell such homes, compared to just 40 days a year ago. Engel & Völkers said the ban on foreign home buyers is a key reason for the postponement, as these buyers have traditionally been the main clientele for the lucrative properties market segment.

Ottawa introduced the Prohibition on the Purchase of Residential Property by Non-Canadians Act last December, which went into effect for two years from January 1, 2023. Any violation of the ban carries a $10,000 fine, although there are certain exceptions.

The law’s main objective was announced in the Liberal government’s 2022 budget and summarized on its website.

“As a temporary measure to stabilize the real estate market in the wake of the COVID-19 crisis, we will ban foreign funds from purchasing any non-recreational residential property in Canada for the next two years unless that purchase is proven to be for future employment or immigration in the next two years,” the Liberal government said on its website.

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“This will also allow us to work with provinces and local governments to develop a framework to better regulate the role of foreign buyers in Canada’s real estate market so that money does not deter providing housing to and from Canadians.” to use.”

Shortly after the regulation came into force, several changes were made to provide exceptions that allow certain types of temporary workers to buy a home despite not having citizenship or permanent residency status.

The ban on buying vacant lots was also lifted, allowing non-Canadians, including foreign investors, to buy vacant lots for potential development purposes. An exception was also granted to commercial companies wishing to invest in residential real estate for development purposes.

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In implementing the ban, the Canadian government said it consulted with government partners, stakeholders and Canadians to develop the regulations.

No low-income family will be affected by a $2 million Toronto sale

Larry Mohr

But Larry Mohr, chief operating officer and licensing partner at Engel & Völkers Ottawa Central, said there had been advice against the ban on properties in the luxury market.

“In our motion, when they took applications last summer, we proposed putting a cap on the price so properties over, say, $1 million would not be subject to the ban because the purpose of the policy was to free up housing.” for affordable housing for low-income families,” he said.

“No low-income family will be affected by a $2 million sale in Toronto or a $2 million sale in Ottawa. There are no low income families on the market for this property. So they’re really distorting the luxury segment of the market, when there really isn’t a need for that.”

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Although some professionals may be eligible for exemptions from the foreign home buying ban, they still face challenges due to provincial taxes. For example, Ontario imposes a 25 percent capital gains tax on non-residents, which according to Anita Springate-Renaud, a registered broker and licensing partner at Engel & Völkers Toronto Central, discourages many professionals from investing in real estate while working in Canada.

“All that hopping through the tires made it very cumbersome and expensive to acquire,” she said. “Even if you hire a lawyer to deal with all of this, that’s also an added expense. Why would anyone care when you can go to another country and not have to do any of that and where you are welcome?”

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The implications of the ban also go beyond the real estate sector, as it could potentially create tension for companies hoping to attract high-profile global talent to Canada, Springate-Renaud said. Wealthy professionals who were once drawn to the idea of ​​investing in Canadian real estate now have no choice but to rent during their stay as buying a home is no longer financially feasible.

“We have a lot of athletes and executives who rent rather than buy because first of all, even if they have a work permit, the Speculation Tax is a huge nexus in the process,” she said. “At least in Toronto, you have to prepay your security deposit, your 4 percent real estate transfer tax, and your 25 percent capital gains tax.”

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Springate-Renaud said she believes people are increasingly choosing to rent these properties rather than buy them, which is having a significant impact on Toronto’s already limited rental housing availability.

“The trickle-down effect is becoming more evident and exacerbating the challenges in our rental market,” she said.

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Mohr also said the situation could have serious repercussions beyond real estate and even lead to possible retaliation from Canada’s trading partners, which could adversely affect Canadians and damage the country’s reputation on the world stage.

“It’s just not looking good for Canada as a small open economy and trading nation,” he said. “If a similar policy were implemented against Canadians, for example if Florida said we would not allow foreigners to buy residential property in our territory, there would be an outcry from Canadians. However, we do not believe in Canadians imposing the same restrictions on them.”

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