In less than two weeks, the ban on foreign buyers purchasing property in Canada will come into effect, despite the many uncertainties surrounding its implementation and the lack of details.
The Prohibition on the Purchase of Residential Property by Non-Canadians Act, also known as the foreign buyer ban, was first announced in April and will take effect on Jan. 1st, 2023. It will prohibit non-Canadians and non-permanent residents from directly or indirectly purchasing property for two years.
Questions remain regarding the specific regulations, definitions and enforcement elements, as that information has not been released by the federal government.
“For whatever reason, they haven't been forthcoming with the necessary information for people to navigate the market. So that's creating some uncertainty for people in our marketplace, particularly industry participants, and realtors, and so on,” said Andrew Lis, director of economics and data analytics at the Real Estate Board of Greater Vancouver.
It is hard to predict the exact impact on the 2023 housing market due to the lack of details and the small number of foreign buyers accounted for in available data, he said.
In addition to restricting individuals, the act will ban non-Canadians from buying residential property through a corporation or other entity. Those who break the ban and any individual – such as a realtor – that assists the sale will face a fine of up $10,000 and the potential forced sale of the property.
It is clear from the information released that the aim of the ban is to cool the housing market, said Chris Sharpe, a real estate lawyer at Clark Wilson LLP.
“To a large degree, we are still operating in the dark as to the exact details of the breadth and scope of the legislation and the impact that it will have on our clients who are, in many cases, involved in the real estate and development industry,” he said.
Regulations relating to the ban on non-residents purchasing residential property will be made available soon, according to a statement to Glacier Media from the media relations office of the Minister of Housing, Diversity and Inclusion. They did not share details regarding the exact date the information would be made available.
“The ban is a temporary two-year measure that is part of the government's response to Canadians' urgent concerns about housing affordability. It is also expected to help reduce the flow of foreign money into Canada to purchase residential real estate,” the statement said.
Adjustments will have to be made to Purchase and Sale Agreements and marketing strategies, in addition to putting in place measures to ensure that buyers are knowledgeable of the ban and who it applies to, according to Sharpe.
Despite the want for more details, it is possible for the industry to comply with the ban should the regulations take longer to be released, according to Saravan Veylan, a partner at MLT Aikins LLP.
“The act itself develops a framework where the prohibition is clearly established. And so people in the industry have been thinking about this for some time, including how to draft agreements that clarify residency status, that type of thing, such that when the precise details under the regulation are released, none of it should come as a surprise,” he said.
B.C. has a history of deterring foreign buying with taxes such as the BC Foreign Buyers tax and the speculation and vacancy tax.
Brendon Ogmundson, chief economist at the British Columbia Real Estate association, said that the extra tax tells foreigners that they are not welcome to invest here. He acknowledged that a balance has to be met and that there is such a thing as too much foreign investment.
“But the correct number is not zero, either. There are sometimes, especially in larger projects when you need to access deeper capital markets and maybe you need to go outside of Canada,” he said.
According to Lis, there could be some impact in the pre-sales market with the lack of foreign investors.
“Investors come into play as being very helpful in moving along new supply, because they're willing to hold this risk of the project until completion. And then on completion, they're willing to sell it into the market for somebody who is looking to purchase and live in a unit immediately. So I do worry that these kinds of policies might have a negative impact on the new supply equation,” he said.
