A 1o-year ban on some foreigners buying homes in Canada has come into effect.
The ban is aimed at easing one of the most unaffordable housing markets in the world. Ottawa last month clarified that the ban would apply only to city dwellings and not to recreational properties such as summer cottages.
The temporary two-year measure was proposed by Prime Minister Justin Trudeau during the 2021 election campaign when soaring prices put home ownership beyond the reach of many Canadians.
“The desirability of Canadian homes is attracting profiteers, wealthy corporations, and foreign investors,” his Liberal Party said in its election plank at the time.
“This is leading to a real problem of underused and vacant housing, rampant speculation, and skyrocketing prices. Homes are for people, not investors.”
It follows the introduction of the Prohibition on the Purchase of Residential Property by Non-Canadians Act.
Major markets such as Vancouver and Toronto have also introduced taxes on non-residents and empty homes.
The country’s real estate market has cooled for sellers as mortgage rates followed the Bank of Canada’s aggressive monetary policy in a bid to rein in inflation.
According to the Canadian Real Estate Association, average home prices have fallen from a peak of more than Can$800,000 (US$590,000) since the beginning of 2022 to just over Can$630,000 (US$465,000) last month.
The Bank of Canada has been raising interest rates, resulting in higher mortgage rates in the country – just like in the United States and other countries that have been hiking rates.
CREA’s price index is still up 38% from the end of 2019, before the pandemic, but the group said that inventory of homes for sales has returned to pre-pandemic levels.
Experts say the ban on foreign buyers — who account for less than five percent of home ownership in Canada, according to the national statistical agency — would not have the desired effect of making homes more affordable.
They claim there is a need for more housing construction to meet demand.
The Canada Mortgage and Housing Corporation — the national housing agency — said in a June report that close to 19 million housing units will be needed by 2030.
That means 5.8 million new homes must be built, or 3.5 million more than are currently anticipated to be built to meet that demand, it said.
The real estate association voiced concern about the law, even with the exemptions for people who intend to move to Canada.
“Canada has built a reputation as a multicultural nation that welcomes people from around the world. As currently proposed, the prohibition on the purchase of residential property by non-Canadians can impact our reputation as a welcoming nation,” said the group’s statement. “The potential benefits of the ban are likely to be modest.”