RSS

Government of Canada Introduces Amendments to Foreign Buyer Ban

On Monday, the Government of Canada announced a series of amendments to the foreign buyer ban — officially called the Prohibition on the Purchase of Residential Property by Non-Canadians Act — to expand the exceptions to the regulations, some of which have become an unintended thorn in the sides of developers across the country.

The four amendments to the foreign buyer ban are effective immediately, as of March 27, 2023, and are as follows.

The Foreign Control Threshold is Now 10%

While the foreign buyer ban was originally created with individual Canadians and the resale market in mind, a less-discussed aspect of the ban was its effect on the development industry, particularly with the legislation deeming an entity as foreign if non-Canadians owned 3% or more of it.

In the short months since the ban came into effect on January 1, this 3% has been repeatedly cited by developers as overly-restrictive, specifically for real estate investment trusts (REITs). With the amendment, the maximum amount of non-Canadian control in a REIT subject to the foreign buyer ban is now 10%.

Purchasing for the Purpose of Development

Perhaps even more of a relief is the new exception that allows non-Canadians to purchase residential property, if the purpose is development. Previously, this exception was only applicable to publicly-traded corporations.

According to a CMHC FAQ, “development” does not include “the mere purpose of leasing or renting the property out to tenants or otherwise managing it as a rental property as part of its portfolio.” Repairs, renovations, and remodeling also do not count as “development,” but the CMHC notes that some expansions or remodels that are “tantamount to the construction of a new building or a change of use” — such as one that would create a new residential property — do, and will now be allowed.

The Ban No Longer Applies to Vacant Land

Under the previous regulations, vacant land zoned for residential use or mixed-use with residential could not be purchased by non-Canadians.

The Government of Canada is now repealing that restriction — Section 3(2) — and with the change, non-Canadians can now purchase vacant land zoned for residential use and use it for any purpose.

The Ban No Longer Applies to Work Permit Holders

A common criticism of the foreign buyer ban has been that it seemingly contradicts the federal government’s lofty immigration goals, or even gives the appearance of xenophobia, by limiting the ability of those who may be looking to settle down in Canada from buying homes.

Now, those who hold a work permit or are authorized to work in Canada are allowed to purchase residential property, so long as they have 183 days of validity, or more, remaining on their permit, and have not purchased more than one residential property.

Source

Read

CIBC's Tal on foreign buyer ban:

Unintended consequences of the “Prohibition on the Purchase of Residential Property by Non-Canadians Act” would require amendments to the clause banning foreign homebuyers from participating in the housing market, according to Benjamin Tal of CIBC Capital Markets.

The legislation, which came into effect on January 1, applied restrictions on any direct or indirect purchase of residential property by non-Canadians for a two-year period.

“The motivation of course is to improve affordability by eliminating a source of housing demand that is often less price sensitive than local buyers,” Tal said.

 

Tal acknowledged the argument that foreign buyers are a negligible factor at best, noting that non-Canadians own a minimal share of the housing stock in the hottest markets (at 2.2% in Ontario and at 3.1% in British Columbia).

“But the counterargument is that whatever marginal role foreign buyers play, eliminating its impact on home prices is better than nothing,” Tal said. “There is nothing to lose. And that’s where the issue is. In fact, there is plenty to lose.”

While the language surrounding the legislation is “straightforward”, there might be some disagreements with the terms “residential property” (which also includes “any developed or vacant land that does not contain any habitable dwelling and that is zoned for residential or mixed use and also is located within a census metropolitan area”) and “non-Canadian” (which the Act defines as any entity with 3% or more foreign ownership, wording that inadvertently includes most publicly traded Canadian REITs, Tal said).

“Consider the language around the term ‘purchases’,” Tal added. “It refers to a direct or indirect purchase, which means that any acquisition of a lease or a mortgage tied to a residential property by a non-Canadian is prohibited.”

The immediate consequences have been an unwelcome surprise for the industry, Tal said.

“The damage is real,” Tal said. “Many commercial real estate deals have been cancelled or are on hold despite the fact that they have nothing to do with residential housing. Developers that are partly foreign-owned or rely on foreign equity cannot proceed with purpose-built developments that, in our view, are the most effective tool to tackle Canada’s housing affordability crisis.”

Policymakers should immediately take stock of the situation and buttress the market against further undesirable consequences by “[amending] the Act in a way that is consistent with what it was intended to achieve — focusing only on single units being purchased by foreigners while exempting development of new supply from the impact of the new legislation,” Tal said.


Source

Read
The data relating to real estate on this website comes in part from the MLS® Reciprocity program of either the Real Estate Board of Greater Vancouver (REBGV), the Fraser Valley Real Estate Board (FVREB) or the Chilliwack and District Real Estate Board (CADREB). Real estate listings held by participating real estate firms are marked with the MLS® logo and detailed information about the listing includes the name of the listing agent. This representation is based in whole or part on data generated by either the REBGV, the FVREB or the CADREB which assumes no responsibility for its accuracy. The materials contained on this page may not be reproduced without the express written consent of either the REBGV, the FVREB or the CADREB.