What the Canadian Government’s Changes to the Foreign Buyer Ban Mean for Investors: An In-Depth Look!
The Canadian government announced several significant changes to the foreign buyer restriction in March, making the law more lenient for immigrants and companies wishing to enter the country’s real estate market.
In an effort to increase housing affordability for Canadians, Parliament passed the Prohibition on the Purchase of Residential Property by Non-Canadians Act on June 23, 2022, and it first went into effect on January 1 of this year. For two years, it is illegal for people and companies from outside Canada to purchase residential real estate.
The regulations underwent four revisions, which went into effect on March 27, thanks to the Honorable Ahmed Hussen, Minister of Housing and Diversity and Inclusion. According to Hussen, “These amendments will enable newcomers to establish roots in Canada through home ownership and businesses to create jobs and build homes by increasing the supply of housing in Canadian cities. These changes to the ban will make sure that Canadian homes are used by people who want to live here rather than being bought speculatively by foreign buyers.
Let’s review these changes and what they mean for investors.
Work Permit Holders Have Fewer Restrictions
The fact that Canada’s foreign buyer ban restricted immigrants’ ability to buy a home appeared to go against the nation’s multicultural values and the government’s record-breaking immigration goals, which bothered many.
With the new changes, more people with work permits can now purchase real estate. At first, temporary residents had to have filed income taxes and worked in Canada full-time for at least three of the previous four years in order to be eligible to buy a home. They also had to have a valid work permit or authorization.
Now, as long as they haven’t purchased a residential property, anyone with 183 days or more of remaining validity on their work permit or work authorization is permitted to purchase a home.
Vacant Land is No Longer Covered by the Ban.
Non-Canadians were prohibited from buying vacant land that was zoned for residential or mixed use, according to Section 3(2) of the ban. Non-Canadians are now permitted to purchase this land and use it for any purpose because this section of the law has been repealed.
Non-Canadians are permitted to purchase real estate for development.
Furthermore, non-Canadians are now permitted to purchase residential properties for development. Prior to now, only publicly traded companies could do this.
The CMHC defines “development” as the evaluation, planning, and enhancement of a residential property or the land it is situated on without changing the use of the building. It also covers renovating an existing structure. The “development” of a property does not include simple alterations, repairs, renovations, or remodels.
The creation of new commercial, residential, industrial, office, or other permitted land uses is an example of an acceptable form of development, as are alterations or improvements that need to be approved by municipal or other land use planning regulators. New residential properties created as a result of redevelopment also count.
Businesses may now have a 10% foreign ownership.
A privately held company was regarded as being non-Canadian when the ban first went into effect if a foreign entity controlled it to the extent of 3 percent or more. Developers found it overly restrictive and detrimental to their ability to build residential projects, which had a negative impact on the development sector. It was particularly unfavorable for real estate investment trusts, or REITs, and developers that are partially owned by non-Canadians. A business that owns, manages, or finances real estate that generates income is known as a REIT. Individual investors can benefit from real estate investments without having to purchase any real estate themselves because they pool the capital of many different investors.
The percentage threshold for foreign ownership of private corporations and entities—including REITs—has now been raised to 10%.
In What Ways Does This Affect Investors?
New opportunities for growth in Canada are intended to be provided by these recent changes. The government is supplying a way for foreign investors to assist Canada in building its much-needed housing by allowing non-Canadian people and businesses to purchase vacant land, redevelop existing buildings, and develop new homes.
By 2068, the population is projected to increase by 6 to 35 million people, according to Stats Canada. Due to Canada’s appallingly low supply of new homes, immigrants will need to create the need for them. In order to achieve housing affordability by 2030, the CMHC predicts that we will require more than 22 million brand-new residential units. The CMHC projects that between 2021 and 2030, only 2.3 million units will be built, based on current building techniques and projections. Building more homes more quickly will be made possible by foreign investment in Canadian development.
By investing in pre-construction today, as an investor, you can benefit from the hot real estate market for decades to come while also capitalizing on Canada’s impending population and development boom.