Canada's Foreign Homebuyers Ban

By Remitbee - Apr 20, 2022

Canada just announced a ban against foreign homebuyers in their country to lower the price of houses for Canadian citizens. Early this April, Canada's prime minister, Justin Trudeau, announced that they would temporarily block non-Canadian citizens from buying a residential house in Canada. The ban will last for two years and is expected to lower house costs, thereby making affordable real estate for Canadian homebuyers.

There is, however, an exemption from the ban. Foreign students who will potentially live and work in Canada may still buy a house. Overseas workers living in Canada are also exempted and other permanent residents are exempt. The policy also says that recreational properties are still available for purchase from the foreign market.

This topic has been one of the most talked-about among real estate investors and Canadians. While the locals may be hoping that the ban will result in the desired effect– making houses more affordable– there's more to it that may worsen the problems instead.

Why was the ban implemented?

For the last decade, Canada has been facing an increase in housing prices. But the increase was worse during the pandemic as prices doubled in just two years! This is so high that Canada's gap between the real estate prices and average household income is nine times farther– among the highest in the world. On average, real estate costs around 700,000 to 800,000 USD. It's safe to say that Canada's real estate is the highest globally.

The Canadian government is now trying to address it by implementing the said ban. However, some parts of it don't seem to fit well in the picture. As many experts point out, it isn't likely to solve the problem. Only 1% of Canada's home buyers' market comprises foreigners, so the significance of this ban is doubtful.

In comparison, New Zealand had done the same, resulting in a decline in real estate purchases. Furthermore, it didn't bull's-eyed the goal to make houses more affordable to locals. In Canadian cities like Vancouver and Toronto, the attempt to leverage real estate from foreign buyers hasn't also turned out effective. Some foreign purchases were made by their Canadian relatives.

Effects and Loopholes of Canada's Homebuyer's Ban

Given that, addressing the problem won't require much of blocking off foreigners from the market but rather tracing out the source of funds from such purchases. In addition, the problem is more rooted in the increasingly high population and shortage of houses available due to strict development policies and less from foreign buyers.

Some projections illustrate that Canada's homebuyer's ban may make things worse. While the policy aims to give Canadian citizens more chances to purchase their own houses, it may provide more profitable opportunities for Canadian real estate investors.

Furthermore, there's a slight problem with how provinces may implement Canada's homebuyer's ban. The federal government may have missed out on some holes and gaps in the policy. For instance, the "recreational property" wasn't defined clearly, and localities may get lost in translation amidst the ban's implementation. In other words, it's still possible that foreigners may "purchase" real estate, depending on the kind of implementation that the province will apply.

The acceptability of the policy is also a bit questionable, penalizing people for buying a house, which is not at all significant in society. The ban violates Canada's agreement with the US and Mexico, as it tends to discriminate against the US and Mexican citizens who want to purchase real estate in Canada. And after all that, will it be worth it, given that the potential effect is insignificant?

Aside from the foreign homebuyer ban, the Canadian government also tries to construct more houses and implement programs to help people save and purchase real estate. Several concerns in the economy need to be addressed if they want a long-term, effective solution for Canada's high real estate prices.

Wrap Up

Although the ban will eliminate a portion of the competitive market– the foreigners– it's less likely that houses will become affordable for most Canadian families. The lack of supply– which is the real cause of Canada's unbelievably expensive housing– is what must be addressed comprehensively.

In contrast to the government's objective, the ban will more likely make the problems worse, giving wealthy Canadians more properties and profits to take on rather than making real estate available and affordable for the majority of the population.

Overall, as the ban has just been announced, we are yet to see how the ban will impact housing prices where it's the most expensive in the world.

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