*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.
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:
As per the Prohibition on the Purchase of Residential Property by Non-Canadians Act, non-Canadians are individuals who are not:
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.
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:
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).
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.
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:
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.
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:
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.
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.
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:
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.
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