Foreigners’ home buying ban: What that could mean for markets that don’t adopt new rules – National

Ottawa’s latest efforts to keep foreign home buyers Pulling out of the national housing market and keeping more Canadians alive comes with a few loopholes that real estate stakeholders say could lead to international investors pouring money into rural areas. village.

Canada has a two-year ban on non-resident buyerEffective January 1, it does not apply to every buyer, every asset class, or every domestic market.

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Canada’s ban on foreigners buying homes takes effect January 1. Here’s what you need to know

For instance, the federal government confirmed in legislation introduced late last year that the ban on non-resident buyers does not cover recreational properties such as cottages.

While that was cleared up in December, the initial announcement of the ban in April 2022 may be enough to spur potential buyers to enter the market before the ban goes into effect.

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A Royal LePage survey of US buyers living in border states in November 2022 found that three-quarters of those with recreational properties in Canada purchased after the federal’ announcement of the order. banned on April 7 of that year. About 77% said the potential effects of the ban influenced their purchasing decisions before the end of 2022.

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Expensive cabins: Lake Alberta properties caught in a tidal wave of real estate

Pauline Aunger, record broker at Royal LePage Advantage Real Estate, said in a statement accompanying the survey that the strength of the US dollar and the relative affordability of resort properties in Canada compared to properties south of the border makes the country’s entertainment market attractive to both sides. investors and tourists.

With world-class ski resorts and picturesque winter landscapes, Canada will remain an ideal location for leisure buyers from around the world, she said.

Canadian real estate ‘on sale’

Chris Alexander, president of Re/Max Canada, told Global News that Canada is being “sold cheaply” against the US with a weaker dollar. It is one of the “countless reasons” that make the country attractive to foreign investment, he said, in addition to Canada’s stable political and banking system.

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Alexander said the ban on buying homes in major cities spurred international investors to look to recreational properties that “could stimulate demand” in these markets.

Toronto-based 21st Century real estate broker Pritesh Parekh told Global News in an email that investors looking to gain exposure to the Canadian real estate market may try to switch their investment strategies invest their homes in entertainment properties.

“If buyers reallocate to recreational properties, we are essentially opening up new, unnecessary challenges for Canadians who want to buy those properties to then need to compete,” he said. with foreigners.

Global News reached out to Housing Minister Ahmed Hussen to inquire about why these exemptions were being made and received a response on his behalf through the Canadian Mortgage and Housing Corporation (CMHC).

The CMHC stated that the temporary ban was put in place to ensure that “residential housing is used as a residence for Canadians, rather than speculative investments by foreign investors.”

But the agency also said that, after consulting with industry stakeholders, it had removed the exemption because of the “critical role played by people who are not recreational property purchases.” Canadians in many smaller communities.”

However, Rishi Sondhi, an economist at TD Bank, is unlikely that the ban on foreign buyers will have much of an overall impact on the Canadian market.

He said that the heavy taxes on non-resident buyers already in place in British Columbia and Ontario may have “wiped out” most international buyers from these markets.

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The Latest data available from Statistics Canada shows that 2.2% of homes in Ontario and 3.1% of homes in BC are owned by nonresidents in 2020 — more than 100,000 units in Ontario and approximately 54,000 in BC

Non-resident ownership increased by 5.0% for condominiums in Ontario and 6.1% for apartments in BC

Click to play video: 'Federal foreign home buying ban goes into effect'

The federal ban on foreigners buying homes goes into effect

With the apartment preference clear so far, Sondhi says it’s unlikely these buyers will leave that market in favor of cottages and other recreational investments.

“One wouldn’t expect a huge amount of foreign money to flow into these markets thanks to this policy because it really didn’t happen before this policy,” he said, adding that it was demand from buyers. in the country has driven higher prices for recreational properties during the COVID-19 pandemic.

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Smaller towns can attract international investors

The foreign buyer ban also only applies to cities of certain sizes: large municipalities known as census metropolitan areas (CMAs) as well as concentrated census tracts. number, usually means a town with a core population of at least 10,000.

For realtors in Prince Edward County (PEC), a popular wine region and tourist destination in Ontario that has seen a flurry of activity during the pandemic, there are some gray areas in the region. new rules.

Tammy Noyes-Bryant is a Century 21 real estate agent in Picton, Ont., a town of just under 5,000 people. While residents may exempt the area from the foreign buyer ban, the broader PEC is consolidated into one municipality, which Noyes-Bryant said is creating some confusion in the local industry needs to be “clarified” by the government.

“If I were a buyer’s agent, I would strongly advise any foreign buyer to have an attorney well versed in reviewing their agreed-upon purchases and sales,” she said.

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While Noyes-Bryant said that PEC lacks the pre-construction apartment market that foreign buyers typically target, she argues that the area has growing opportunities for those looking to attract international money.

PEC’s tourist appeal has made it a hotspot for short-term rentals like Airbnbs in recent years, but she says strict regulations on these types of properties have limited the market. this business case.

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She said she has been much more active in the rental property sector recently as landlords find long-term rental opportunities in PEC amid the hot rental market in Canada.

“I think there are some opportunities for foreign buyers,” she said.

Beyond mere investment, areas like the PEC and the nearby Quinte area could be increasingly welcome as destinations for immigrants looking to start life in Canada, Noyes-Bryant said.

While traditionally newcomers are drawn to larger cities in search of languages ​​and other settlement services, she noted that many Ukrainian and Syrian refugees have recently been welcomed. to the small-town life that the countryside has to offer thanks to remote services that help them adapt.

Hot entertainment market may cool down in 2023

Even as international investors boost business in recreational markets and rural areas, experts say other forces could slow activity in these regions.

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While many housing markets around the country cool off and drop in prices through 2022 when the Bank of Canada raises interest rates, the leisure market continues to grow in many places.

Royal LePage said in November that the median price of a detached recreational home in Canada rose 15.1% to more than $1 million in the first 10 months of 2022.

Alexander said the segment is an exception because there is “very low inventory” in the entertainment market and “demand remains high” from buyers. He believes Canadians are still hesitant to travel internationally amid the COVID-19 pandemic and are looking to invest domestically for their holidays.

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For areas like Prince Edward County, Noyes-Bryant said she has seen inventories and market sell days increase in recent months, but prices have yet to fall from their peak during the pandemic.

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She says there is still demand from buyers who want to join PEC but either missed the initial wave or was intimidated by the frenzy of many offers in recent years.

Royal LePage said larger inventories and reduced competition in the leisure market could push average prices down 3.0% year-on-year by 2023.

Alexander said he expects the small-home and cabin market to remain busy in 2023, but not necessarily as vibrant as in previous pandemic years.

With fears of a recession hitting the economy in 2023, he noted that recreational properties are often the first to sell when money is tight and Canadians find it difficult to spend. Mortgage fees increase.

Alexander also predicts that some buyers who have jumped into country life during the peak of lockdown may rethink their plans and head back to the city when in-person work returns and city ​​centers reopened.

“I think the people who make those decisions are going to spend all their time in the stock market, some of them might decide that it’s time to move on,” he said.

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