Canada will close its doors to foreign investors looking to buy a home in 2023.
A new Canadian law came into effect on Jan. 1, essentially banning foreign buyers from buying residential property as an investment for two years. The law was passed as Canadian home prices have soared since the start of the pandemic — and as some politicians see a duty on foreign buyers to snap up housing supply as investment.
“The allure of Canadian housing is attracting profiteers, wealthy corporations and foreign investors,” said Prime Minister Justin Trudeau’s party’s campaign website last year. “This leads to a real problem of underutilized and vacant housing, rampant speculation and skyrocketing prices. Homes are for people, not investors.”
The law provides exceptions for home purchases by immigrants and permanent residents who are not Canadian citizens.
But the sharp rise in home prices in 2020 and 2021 has reversed in 2022, well before the law takes effect. According to the Canadian Real Estate Association, the average home price in Canada peaked at just over C$800,000 in February and has since declined steadily, down about 13 per cent from the peak.
The Bank of Canada has been raising interest rates, leading to higher mortgage rates in the country — just like the U.S. and other countries that have been raising rates.
CREA’s price index is still up 38% from before the pandemic in late 2019, but the group says the inventory of homes for sale has returned to pre-pandemic levels.
Real estate associations have expressed concern about the law, even though there are exemptions for those intending to immigrate to Canada.
“Canada has a strong reputation as a multicultural country that welcomes people from all over the world. As currently proposed, prohibiting non-Canadians from buying residential property could affect our reputation as a hospitable nation,” the group’s statement said. “The potential benefits of the ban may not be significant.”
CREA also expressed concern that the ban could prompt retaliation from the U.S. and Mexico by banning Canadians from buying goods in those countries, especially as retirees seek winter housing far away from Canada.
“Canadians are buying vacation and residential properties in many countries, especially in the United States,” the group said.
Canadians are the largest foreign buyers of U.S. real estate, with more than half of all properties purchased by Canadians in Florida and Arizona, CREA said.
“These provide Canadians with a place to spend the winter and a form of savings for Canadian retirees,” the group said. “If Canada prohibits Americans from owning property in Canada, we should expect the same response from them.”