*This post was created in collaboration with Mortgage Maestro.
Currently, the average price for a house in Canada is over $777,000. That’s 11 times the median household income after taxes, which makes our housing market one of the most unaffordable in the world. To counteract this phenomenon, the Canadian Government has implemented specific measures, like the recent ban on foreigners buying property.
Want to know whether Canada’s ban on foreigners buying property will make houses more affordable? Read this to find out.
What Is The Ban On Foreigners?
As of January 1st, 2023, select foreign citizens and corporations were banned from buying homes on Canadian soil. Under a new government-regulated law called The Prohibition on the Purchase of Residential Property By Non-Canadians Act.
For four weeks in August and September of 2022, a consultation document listing certain policy proposals was available to Canadians. Roughly 200 submissions of feedback and comments from stakeholders and individuals were received. Following that feedback, the new act states that:
- Starting on January 1, 2023, non-Canadians (as defined by the Prohibition on the Purchase of Residential Property by Non-Canadians Act) cannot buy any residential property in Canada for two years. In March 2023, certain foreign buyers are exempt in certain circumstances. However, this law does not apply to people who wish to rent.
- “Residential Property” is defined as buildings containing three homes or fewer, as well as portions of buildings like condominium units or semi-detached houses.
- Any non-Canadian or anyone who knowingly helps a non-Canadian, and is convicted of violating the Act, will be charged a $10,000 fine. If a court discovers that a non-Canadian has done this, they may also order the sale of their property.
Who Are Non-Canadians?
As per the Prohibition on the Purchase of Residential Property by Non-Canadians Act, non-Canadians are individuals who are not:
- Canadian citizens
- Permanent residents
- A person registered under the Indian Act
- People with work permits in special circumstances
Which Countries Are Banned From Buying Property In Canada?
This new ban applies to all foreign buyers, meaning non-Canadians, non-permanent residents, and foreign commercial enterprises. That said, non-resident buyers make up a small portion of our real estate market. Moreover, many are still exempt and some housing policy experts aren’t sure if the ban will actually affect home prices.
Foreigners Exempted From Buying Property
Canadian citizens and permanent residents are totally exempt from the housing ban. However, most non-Canadian buyers, including foreign-controlled Canadian entities and overseas corporations, are not allowed to buy residential property for the next two years.
The only exceptions will apply to international students and foreign workers. They are permitted to purchase a single residential property if they meet one of these conditions:
- Foreign workers must have filed taxes in Canada for three out of four years before buying a property.
- International students must be present in Canada for at least 244 days each year, for a minimum of five years, before buying a property. Additionally, they cannot buy a property that costs more than $500,000.
- Foreign nationals with temporary resident status, including refugees and those fleeing conflict, are exempt without further restrictions. The same rule applies to diplomats, consular staff and members of international organizations living in Canada.
- Recreational properties (such as cabins, cottages, and other vacation homes) and building with dwelling units of more than 3 are exempt as well.
How Long Is The Ban On Foreign Buyers?
The Prohibition on the Purchase of Residential Property By Non-Canadians Act officially began on January 1st, 2023 and will end on January 1st, 2025 (a total ban of two years).
Ban On Foreigners Buying Property: Will It Make Houses More Affordable?
As mentioned, our Government has implemented this new ban to prioritize Canadians and give them more access to affordable housing. The above exemptions were also applied to encourage those who intend on becoming permanent residents. In 2018, New Zealand passed similar legislation in the wake of its own housing crisis.
According to studies done by the Canadian Housing Statistics Program, non-residents make up less than 4% of Canada’s residential owners. That includes Ontario and British Columbia, where housing prices are the highest in the country. So, it’s still tough to say whether the ban on foreign buyers will truly make houses more affordable.
How Much Property Do Foreign Buyers Have In Canada?
The percentage of foreign homeownership varies in every region, but most are relatively small. To give you a better idea, here are some of the available statistics concerning residential properties where one or more owners were a non-Canadian in 2020:
- British Columbia = 4.7% (Vancouver = 6.3%)
- Manitoba = 2.7% (Winnipeg = 2.6%)
- New Brunswick = 5.6%
- Nova Scotia = 5.6% (Halifax 4.1%)
- Nunavut = 2.5%
- Ontario = 3.4% (Toronto = 4%)
- St. John’s (Newfoundland & Labrador ) = 5.6%
- Whitehorse (Yukon) = 5.1%
- Yellowknife (Northwest Territories) = 2.7%
Another example is BC’s housing boom of 2021, where only around 1.1% of purchases had a foreign home buyer. This was a 3% drop from 2017, which the BC Government claims is due to its taxes on non-residents, speculators, and empty homes. Ontario has also seen a decline in foreign home buyers since it started taxing non-residents in 2017.
Can You Afford A Mortgage In Canada?
While the ban on foreigners buying property exists, getting a mortgage may still prove difficult due to the potential changes by the OSFI (Office of the Superintendent of Financial Institutions). This includes the implementation of the Minimum Qualifying Rate (MQR) or mortgage stress test.
Proposed changes include:
- Loan-To-Income (LTI) and Debt-To-Income (DTI) Restrictions – This would limit mortgage debt or total debt as a multiple or percentage of borrower income.
- Debt Service Restrictions – This limits current debt service duties as a percentage of borrower income (principal, interest, and other related costs).
- Stress Tests – The OFSI is proposing another minimum interest rate above the current minimum qualifying rate of 5.25%. It would be used to determine if a borrower can afford higher payments when they experience negative financial stocks.
If you’re having trouble locating an affordable mortgage, a good mortgage broker can help you find a lender who is willing to work with you and your financial preferences.
Why Work With Mortgage Maestro?
Mortgage Maestro offers custom mortgage solutions for residents of Alberta, British Columbia and Ontario. They work with a wide range of lenders and service providers, which means they offer competitive rates and can help find you a lender regardless of your financial situation.
- All Online – Like many other online personal loan lenders in Canada, with Mortgage Maestro, you can get a mortgage, renew or refinance your existing mortgage, and do much more, entirely online.
- Partnered With 50 Financial Institutions – Mortgage Maestro works with tons of different lenders, including many of Canada’s largest banks and credit unions.
- Custom Mortgage Offers – The Mortgage Maestro team can help you assess your financial goals and build you a mortgage solution that’s tailored to your needs.
Remember
Whether you’re an eligible foreign homebuyer or a Canadian resident, there are several important things you should remember to do before you apply for a mortgage, including:
- Check Your Credit Score – You can get a copy of your credit report and credit score for free from sites like CompareHub. Both your credit score and report can affect your ability to qualify for good mortgages and interest rates. Many lenders only accept applicants with decent scores of around 660 to 900.
- Budget Properly – Add up your most significant expenses, then create a realistic budget to ensure that you don’t overextend yourself and run into debt problems. If you can’t afford those costs, chances are you can’t afford mortgage payments.
FAQs On The Ban On Foreigners Buying Property
Will the ban lower home prices?
Which properties are foreigners banned from buying in Canada?
Are there any penalties for foreigners who buy property in Canada?
Will The Ban On Foreigners Make Home Ownership More Affordable?
The ban on foreigners buying property is just one new legislation the government of Canada has implemented to help make housing more affordable. However, with interest rates still high and tougher mortgage qualification rules by the OFSI, entering the housing market may still prove difficult.
