Benjamin Thompson Kirk: Canadian Real Estate

Real estate specialist Benjamin Thompson Kirk works with clients across Canada, the United States, and the United Kingdom. This article will focus on the Canadian property market, exploring how the Canadian government hopes that a ban on foreign property buyers could pave the way for increased affordability in the Canadian real estate market.

Canada is currently grappling with a booming property market that is increasingly putting homeownership out of the reach of ordinary Canadian citizens. In response to this growing problem, Prime Minister Justin Trudeau announced plans to prevent foreigners purchasing Canadian homes. In doing so, the Canadian government hopes to solve widening political challenges regarding property affordability in the country today. However, some quarters question whether the move will be effective, expressing doubts that money coming in from abroad is a significant driver in terms of skyrocketing Canadian property prices.

According to a report published by the Canadian Real Estate Association, home prices across the country rose by an astronomical 27.1% in March 2022 compared with the same month the previous year. Although this did mark a slight drop on February 2022’s figures, property price increases continue to squeeze first-time buyers out of the market.

Like many countries, Canadian households are feeling the pinch following months of scorching inflation driven by surging gas and food prices. In March 2022, the Canadian annual rate of inflation reached 6.7%, representing a 31-year high.

Trudeau’s political rivals clearly regard mounting cost-of-living issues as a significant stumbling block for the prime minister, with runaway house prices at the heart of the debate hitting younger Canadians the hardest.

The recent budget was an opportunity for the Canadian government to address the public’s financial woes. Chrystia Freeland, finance minister and deputy prime minister, proposed banning foreign buyers from purchasing Canadian homes for a two-year period. The budget summary suggested that, for years, foreign money has been coming into Canada to finance the purchase of residential real estate. The ban effectively means that foreign commercial enterprises – and indeed, anyone who is not a permanent resident or Canadian citizen – would be banned from purchasing non-recreational, residential property for  two years.

However, the plan includes many exemptions; for example, it would not apply to individuals permitted to enter the country for emergency reasons, as well as refugees, individuals with work permits already living in the country, and international students working towards permanent residency.

With the average Canadian home price skyrocketing to more than $800,000 by May 2022, the nation is experiencing an alarming housing crisis, with real estate prices becoming stratospheric – but how does the reality of banning foreign purchasers really affect the country’s real estate market?

Rachel Younglai works for the Globe and Mail in Toronto, reporting on real estate. In an interview with NPR, she indicated that, with house prices going up by 50% over the past two years, it had become a national problem – and a huge one at that. When asked whether Trudeau’s policies of locking foreign buyers out of the market would really be effective, she explained that the latest data indicated that foreign owners owned a very small share of housing stock. For example, in Ontario, they owned just 2.2% of homes, according to data from 2020. Suggesting that Canadians rather than foreign buyers were behind the latest real estate boom, she expressed skepticism about the ban having a huge impact on Canadian home prices.

Meanwhile, speaking with POLITICO, a senior government official indicated that while many of President Trudeau’s housing affordability measures were designed to boost supply, the ban on foreign property purchasers was aimed at tackling demand. Speaking on condition of anonymity, the official indicated that Canada’s surging property prices were making the country a very attractive option for foreign investors hoping to achieve big returns.

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