Toronto, Canada

Canada is one of the top destinations for millions of people throughout the world who are looking to relocate. However, some people who are considering moving there may need to reschedule their plans. As per a new law, many foreigners are prohibited from purchasing residential property in the North American country for two years.

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Why the new regulation?

A new regulation that prohibits the majority of foreign homebuyers from purchasing houses for investment purposes for two years took effect in Canada on 1 January 2023. This was done to enable those who live in the country to afford homes.

However, there are a number of exceptions to the Prohibition on the Purchase of Residential Property by the Non-Canadians Act. It enables non-Canadian citizens who are immigrants or permanent residents to buy property. Students and migrants are also not covered by it.

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As reported by The New York Times, the ban does not cover vacation houses in "recreational zones" and only to "census metropolitan areas" and "census agglomerations," which are essentially cities that fulfill specific demographic requirements. Additionally, the law does not apply to home buyers with Canadian spouses or partners and foreigners buying multifamily dwellings with more than three units. 

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The act was passed as a result of the pandemic's significant surge in housing costs, which in turn had a negative impact on inventories, sales, and rentals. 

Many politicians in Canada think that foreign investors who bought real estate as investments are to blame for this. Prime Minister Justin Trudeau made the housing problem a campaign issue and pledged to bring this problem under control in the election of 2021.

“The desirability of Canadian homes is attracting profiteers, wealthy corporations, and foreign investors,” said the campaign website of Trudeau’s Liberal Party of Canada, according to a report on CNN. “This is leading to a real problem of underused and vacant housing, rampant speculation, and skyrocketing prices. Homes are for people, not investors.”

A spokesperson for Canadian finance minister Chrystia Freeland, said in a statement, “Houses should be homes for Canadians to live in and not an investment asset for foreigners.”

Canada's housing situation: How bad is it?

Compared to the pandemic in 2020 and 2021, the situation as per now has improved.

CNN reports that in 2022, the trend in housing prices has reversed. According to the Canadian Real Estate Association, the average price of homes has decreased by 13 per cent from its peak of over $800,000 in February.

Mortgage rates have increased as a result of the Bank of Canada boosting interest rates.

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By 2030, close to 19 million housing units would be required, according to a forecast by the national housing agency, Canada Mortgage and Housing Corporation, according to AFP. It stated it would need the construction of 5.8 million new dwellings or 3.5 million more than was already envisaged.

Will the new regulation bring down prices?

Despite the fact that foreigners made up fewer than five per cent of Canadian homeowners, according to the national statistics office, many real estate experts think the restriction on foreign purchasers won't have the desired result of increasing home affordability. As reported by the news agency AFP, they rather indicate that more homes must be built to fulfill demand, rather than imposing a ban. 

“I think this is very much a political policy, more than an economic policy,” Brendon Ogmundson, chief economist at the British Columbia Real Estate Association, told CBC News. “A lot of the public has been convinced over the last few years that it’s foreign investors and foreign money that are driving home prices, rather than what’s actually doing it: low-interest rates and very low supply.”

Jenny Kwan, a member of parliament for Vancouver East and the housing critic for Canada's opposition New Democratic Party, claimed that the measure failed to address the true causes of the housing problem, as reported by the NYT.  “The government must target real estate investment trusts,” or companies that invest in real estate for a profit, she added. 

(With inputs from agencies)

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