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Some foreigners will not purchase property in Canada for the next two years.
The ban’s goal is to make homes more affordable in one of the world’s most expensive cities.
This summer, the average home price in Canada was C$777,200 ($568,000; £473,700), which is more than 11 times the usual household income after taxes.
Some people are against the restriction because they are unsure how it would affect the Canadian real estate market.
According to data, Ontario and British Columbia have the highest housing values in Canada, with less than 6% of homeowners being non-Canadian nationalities.
Non-Canadians and permanent residents can no longer acquire real estate in Canada as of January 1. Violators will risk a C$10,000 fine.
The Canadian government declared in December, 11 days before the ban went into effect, that there would be exceptions to the law, such as for international students who have lived in the country for at least five years, refugees, and people with temporary work permits.
According to Ahmed Hussein, the federal minister in charge of housing, the rule is meant to dissuade people from perceiving homes as objects rather than somewhere to live and raise a family.
Even though Canadian house prices declined marginally in 2022, they are still much greater than they were ten years before.
The average house price in 2013 was C$522,951, implying a 48% gain in 2014.
Meanwhile, the typical Canadian household income has not kept pace with soaring home prices. According to the most recent data, the median household income after taxes increased by 9.8% between 2015 and 2020.
According to Statista’s research of house-price-to-income ratios, Canada’s housing market is among the most unaffordable in the world, ranking higher than in New Zealand, the United States, and the United Kingdom.
The average price of a property in two of Canada’s largest cities, Toronto and Vancouver, has surpassed C$1 million, placing them among the world’s top ten most expensive cities.
As New Zealand struggled with housing affordability in 2018, the country restricted foreigners from owning property.
When inflation is considered, however, property values have continued to rise after the moratorium was implemented.
Other governments have discouraged foreigners from owning property by making certain neighborhoods off-limits to non-residents or charging foreign buyers specific fees.
Foreigners are not permitted to buy real estate in Canada
Canada’s Prime Minister Justin Trudeau suggested a two-year freeze on foreign property acquisitions in April 2022.
The measure comes as the country deals with some of the world’s most expensive housing concerns.
Prices have risen by more than 20%, with the average Canadian home costing more than nine times what a family earns in a year.
However, industry experts caution that barring foreign buyers is unlikely to resolve the situation.
There is little information available about what overseas buyers buy in Canada, although research shows that they account for a small portion of the market.
Mr. Trudeau declared during his election campaign last year that he would work to make housing more accessible.
Aside from the temporary ban on foreign acquisitions, his government’s budget proposal for Thursday contains billions of dollars to spur new building. Furthermore, it suggests other efforts, such as enabling first-time house buyers to save money without paying taxes.
Mr. Trudeau has also proposed banning bidding techniques that benefit investors, who have purchased nearly one of every five properties in Canada since 2014.
The proposed foreign buyer ban would not apply to permanent foreign residents, international students or workers, or anyone purchasing a principal residence.
The plan builds on what other Canadian provinces have done in the past, such as levying additional taxes on out-of-town and abroad buyers.
In Ontario, for example, Premier Doug Ford recently indicated that he aims to raise the tax on foreign buyers from 15% to 20% and apply it to the entire province rather than just Toronto.
Even if offshore purchases aren’t the cause of affordability concerns, taxing them brings in money that can be used to relieve them, according to Steve Pomeroy, president of housing policy firm Focus Consulting.
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In 2018, New Zealand took the same measure, barring foreign buyers.
According to Paul Kershaw, a University of British Columbia professor and the founder of Generation Squeeze, Mr. Trudeau’s plan does nothing to stop price hikes or make it easier for people to pay for things.
Mr. Pomeroy believes that price inflation will fall as the Fed raises interest rates in the coming months. However, many Canadian purchasers prefer five-year mortgages to the longer-term mortgages favored in the United States and the United Kingdom. This makes the Canadian home market particularly vulnerable to such moves.
However, he warned that rising borrowing rates would make it more difficult for first-time buyers to enter the market.