Non-resident guide to buying property in Toronto

Toronto is among the most famous cities in Canada. This bustling metropolis is the country's economic and cultural heartbeat with a unique flavour that makes it a magnet for domestic and international investors seeking opportunities in real estate.

However, in recent times, Toronto has not been spared the effects of Canada's housing sector challenges, mainly related to drying supply and skyrocketing prices. According to a survey by Zoocase, an online real estate brokerage company, Toronto's home prices increased by 116.6% from 2013 to 2023, rising from $587,800 to $1,273,300 within a span of ten years.

Despite these challenges, Toronto's properties remain a prime investment hub with a very optimistic outlook for 2024. According to the CBRE's Canada Real Estate Market Outlook, commercial real estate investments are set to recover in 2024 with help from global investments and the predicted rate cuts from the Bank of Canada, which will give investors access to more capital.

This article will cover all the basics in your journey toward buying property in Canada as a non-resident.

Checklist before buying property in Toronto as a Non-resident

Navigating the intricacies of the Toronto real estate market can be a daunting task as a non-resident, especially if you are not familiar with the local regulations and processes. This checklist will walk you through the essential steps and considerations before taking the plunge.

Understanding the Market

Before diving into the process of buying property in Toronto, it's crucial to understand the current state of the market. Like many other major cities, Toronto's real estate market experiences fluctuations influenced by various factors such as economic conditions, interest rates, government policies, and demographic trends. Conducting thorough research and seeking advice from local experts can help non-residents gain valuable insights into market trends, property values, and investment potential.

Legal Considerations

Non-residents looking to buy property in Toronto must familiarize themselves with Canadian real estate laws and regulations. While the process of purchasing property is generally straightforward, there are specific legal considerations that non-residents need to be aware of:

Foreign Ownership Restrictions:

In 2022, the Canadian government introduced a temporary ban on foreign buyers buying property in Canada to address a supply shortage in the housing market. Successive amendments have led to the relaxation of this rule, allowing study and work permit holders to purchase a home while they work in the country.

Work permit holders must have 183 days or more of validity remaining on the permit at the time of the purchase but cannot purchase more than one residential property.

The amendment also drew a clear distinction between non-residents adding to Canada's housing supply and those engaging in speculative investments by exempting vacant land zoned for residential and mixed-use from the ban so non-Canadians can purchase such land for residential development.

Tax Implications:

As a Non-resident, you should be aware of certain tax obligations you are subject to when buying and selling property in Canada. As of 2024, the Toronto Mayor's Executive Committee approved a proposed 10% tax on foreign buyers of residential properties in Toronto on top of the existing 25% Non-Resident Speculation Tax (NRST) introduced in 2017.

Legal Representation:

Non-residents should seek legal representation from a qualified real estate lawyer familiar with the laws and regulations governing property transactions in Toronto. A lawyer can provide valuable guidance throughout the buying process and ensure all legal requirements are met.

Financing Options

Non-residents can opt for cash purchases or mortgages in Canada, which often come with differing terms or additional security and compliance requirements compared to mortgages for Canadian citizens and permanent residents.

The most common forms of mortgages in Canada are:

• Fixed-rate mortgage: A fixed-rate mortgage means that your interest rate will remain the same for the duration of the loan.

• Adjustable-rate mortgage: An adjustable-rate mortgage typically starts at a below-market rate to make it more affordable but will eventually be adjusted to meet the prevailing interest rate.

• Interest-only loans: These loans can be more complicated and imply that you will pay only the mortgage's interest for a determined period. The principal will be paid later in a lump sum or larger subsequent payments.

• Reverse mortgages: Reverse mortgages are intended for older adults who wish to exchange some of the equity in their house for cash.

Property Search and Purchase Process

Once you've familiarized yourself with the market and legal considerations, the next step is to begin your property search. Working with a reputable real estate agent specializing in serving non-resident clients can be invaluable in finding suitable properties and navigating the buying process. Here's an overview of the typical steps involved in purchasing property in Toronto:

• Property Search: Identify your preferences and priorities, such as location, property type, size, and budget. Your real estate agent can help you find listings that meet your criteria and arrange viewings.

• Offer and Negotiation: When you find a property you're interested in, your real estate agent will help you submit an offer to the seller. Negotiations may ensue, during which you can work with your agent to reach mutually agreeable terms.

• Due Diligence: Once your offer is accepted, you'll have a period to conduct due diligence on the property. This may include obtaining a home inspection, reviewing relevant documents, and confirming financing arrangements.

• Closing: The transaction can be closed once all conditions have been satisfied and financing is in place. Legal documents are finalized during this stage, and property ownership is transferred to the buyer.

Conclusion

The current housing crisis has raised the barrier of entry for non-residents who can own homes in Toronto. However, it is still possible and can be a rewarding investment opportunity when approached with careful consideration and diligence, an understanding of the market, legal requirements, financing options, and working with experienced professionals.