Canada immigration news: Permanent residents and temporary residents, including temporary workers and international students, are to be exempt as Canada bans foreign nationals from buying homes starting January 2023.
The measures were part of Bill C-19 – the Budget Implementation Act, 2022 – which received royal assent on June 23, as the federal government looks to cool the hot housing market.
Finance Minister Chrystia Freeland says the ban on foreign ownership of homes is needed to curb house prices in Canada and prevent them from rising so high as to push working-class and young Canadians out of the real estate market.
“We will make the market fairer for Canadians,” said Freeland. “We will prevent foreign investors from parking their money in Canada by buying up homes. We will make sure that houses are being used as homes for Canadian families rather than as a speculative financial asset class.”
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The ban on homebuying by foreign investors, though, does not include permanent residents or temporary residents.
The temporary ban on foreign investment in the Canadian residential real estate market also comes as Ottawa is proposing to double the number of new homes being built in cooperation with the provincial and territorial governments, municipalities, and the private and non-profit sectors.
“Canada does not have enough homes. We need more of them, fast,” said Freeland. “This budget represents the most ambitious plan that Canada has ever had to solve that fundamental challenge.
Canada Planning To Double Number Of Housing Starts To Push Prices Down
“We will invest in building more homes and in bringing down the barriers that keep them from being built. We will invest in the rental housing that so many count on. We will make it easier for our young people to get those first keys of their own.”
Until Canada’s housing stock sees a serious uptick in starts, Ottawa wants to curb foreign investment in it to lower the rate of inflation in it.
“For years, foreign money has been coming into Canada to buy residential real estate, fuelling concerns about the impact on costs in cities like Vancouver and Toronto and worries about Canadians being priced out of the housing market in cities and towns across the country,” states a backgrounder on the housing market published online by the federal government’s finance department.
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“To make sure that housing is owned by Canadians instead of foreign investors, Budget 2022 announces the government’s intention to propose restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada for a period of two years.”
Ottawa’s move to rein in inflation in the Canadian real estate market by banning foreign investment, though, is ironically coming as analysts are already forecasting a downturn – some even say a crash – in residential real estate across the country.
In an RBC Economics report released last week, entitled Canada’s Housing Markets Keep On Cooling, economist Claire Fan noted that Toronto, Vancouver, Montreal, Ottawa and Calgary all witnessed declines in home sales in June as those markets continued to reverse their pandemic surge. The reason? Bank of Canada interest rate hikes.
Rising Interest Rates Already Forcing House Prices Down In Canada
“The slowdown in June was particularly acute over areas where markets were strongest during the pandemic (and prices the highest), including Toronto and Vancouver,” wrote Fan.
“These regions have been more sensitive to early interest rate increases due to higher average home prices and larger mortgage sizes.”
In Toronto, the number of homes sold dropped 41 per cent year-over-year in June and, in Vancouver, home sales fell 35 per cent during the same period.
“With buyers on standby and sellers eager to sell, prices unsurprisingly have been falling in recent months although have only retraced a small part of the appreciation over the last year,” wrote Fan.
“Toronto’s benchmark house price index was still up 18 per cent from a year ago in June, but was down three per cent from May by our count (on a seasonally adjusted basis.) Further headwinds remain, given the pace of Bank of Canada rate hikes is only expected to accelerate over the summer. That should work to erode housing affordability further, put more buyers on the sidelines, and push prices lower.”
At Desjardins, a financial services cooperative in Canada, a senior director has also come out with a forecast that warns the housing bubble is going to burst due to higher interest rates. A Desjardins report pegs the likely drop in Canadian house prices from February this year through to the end of 2023 at 15 per cent.