Ottawa’s latest endeavor to keep overseas home buyers Keeping more stock out of the national housing market and for Canadians comes with some drawbacks, which real estate stakeholders say could prompt international investors to put their money in rural areas.
Canada banned for two years non resident buyerWhich came into effect from January 1, does not apply to every buyer, every type of property or every market in the country.
Canada’s ban on foreign homebuyers comes into effect on January 1. Here’s what to know
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For example, the federal government confirmed in legislation introduced late last year that the ban on non-resident buyers does not include recreational properties such as cottages.
Although this was clarified in December, the initial announcement of the ban in April 2022 could be enough to prompt potential buyers to hit the market before the ban becomes law.
A November 2022 Royal Lepage survey of US buyers living in border states shows three-quarters of those with recreational property in Canada bought after the Fed announced the ban on April 7 of that year. About 77 percent said the potential effects of the ban influenced their decision to buy before the end of 2022.
Pauline Unger, broker of record at Royal Lepage Advantage Real Estate, said in a statement accompanying the survey that the strength of the U.S. dollar and the relative affordability of vacation properties in Canada make the country’s recreational market both attractive compared to south of the border. . Investors and leisure travelers.
“With its world-class skiing resorts and picturesque winter landscapes, Canada will continue to be a desirable destination for recreational buyers from around the world,” she said.
Canada real estate ‘on sale’
Chris Alexander, president of Ray/Max Canada, told Global News that Canada is “on sale” compared to the US with a weaker dollar. In addition to Canada’s stable banking and political system, the country is one of a “multitude of reasons” to be attractive to foreign investment.
Alexander says restrictions on big-city shopping tend to push international investors toward recreational properties, which could “boost demand” in these markets.
Investors looking to tap into the Canadian real estate market may want to try to shift their residential investment strategy to recreational properties, Pritesh Parekh, realtor with Toronto-based Century 21, told Global News in an email.
“If buyers reallocate recreational properties, we are essentially opening up new, unnecessary challenges for Canadians who want to buy such properties, then need to compete with foreigners,” he said. .
Global News reached out to Housing Minister Ahmed Hussain to ask why these exemptions were granted and received a response through Canada Mortgage and Housing Corp (CMHC) on his behalf.
The CMHC said the temporary ban was brought in to ensure “that housing is used for Canadians, rather than as a speculative investment by foreign investors.”
But the agency also said that, after consultation with industry stakeholders, it has made the exemption in light of the “significant role that recreational property purchases by non-Canadians play in many small communities”.
Rishi Sondhi, an economist at TD Bank, isn’t sure the foreign buyer ban will have an overall impact on Canadian markets.
He says that heavy taxes on non-resident buyers already in force in British Columbia and Ontario have already “washed out” most international buyers from these markets.
Latest available data from Statistics Canada shows that 2.2 per cent of homes in Ontario and 3.1 per cent in BC were owned by non-residents as of 2020 – which accounts for more than 100,000 units in Ontario and about 54,000 units in BC.
Non-resident ownership rises to 5.0 per cent of condominium units in Ontario and 6.1 per cent of condos in B.C.
Given the clear condo preference to date, Sondhi says it’s not certain these buyers will abandon that market for cottages and other recreational investments.
“One would not expect huge foreign inflows into these markets as a result of this policy as this was not really the case prior to the policy,” he says, adding that it was demand from domestic buyers that drove it. The prices of recreational properties are high during the COVID-19 pandemic.
Small towns can attract international investors
Foreign buyer restrictions apply only to cities of a certain size: major municipalities called census metropolitan areas (CMAs) as well as census agglomeration areas, which usually have a core city population of at least 10,000 .
For realtors in Prince Edward County (PEC), a popular wine region and tourist destination in Ontario that saw a flurry of activity during the pandemic, there is some gray area in the new rules.
Tammy Noyce-Bryant is a Realtor with Century 21 in Picton, Ontario, a town of just under 5,000 people. While the population may exempt the area from the foreign buyer ban, the inclusion of the wider PEC as a single municipality, which Noyce-Bryant says is causing some confusion within the local industry that the government needs to “clarify”. ” is required.
“If I were a buyer’s agent, I would strongly suggest that any overseas buyer have an attorney who is well-versed in reviewing their purchase and sale agreement,” she says.
While Noyce-Bryant says that PEC lacks the pre-construction condo market that has traditionally attracted foreign buyers, she argues that the area is a growing destination for those looking to park international wealth. have the opportunity.
PEC’s tourism draw has made it a hot spot in recent years for short-term rentals such as Airbnb, but she says bylaws prohibiting these types of properties limit the business case.
She says she has been more active on the rental side of real estate lately as landlords see opportunities in long-term leases in PEC amid a hot rental market in Canada.
“I think there is some opportunity for overseas buyers,” she says.
Beyond just investment, says Noyce-Bryant, areas like the PEC and the surrounding Quinte region could become increasingly welcome as destinations for immigrants looking to get their start in Canada.
While traditionally newcomers would have gravitated to larger cities for language and other settlement services, she notes that recently many Ukrainian and Syrian refugees have been welcomed into small-town life that provides remote services to rural areas. provide them with the advantage of to help them get used to.
Hot recreational market may cool off in 2023
Even though international investors drive businesses in recreational markets and rural areas, experts say other forces may be slowing activity in these areas.
While many housing markets across the country froze and saw prices decline through 2022 as the Bank of Canada raised interest rates, the recreational market continued to grow in many places.
Royal LePage said in November that the median price of a detached recreational home in Canada is set to rise 15.1 percent during the first 10 months of 2022 to more than $1 million.
Alexander says the segment was an outlier because there was “very little inventory” in the recreational market and “still high demand” from buyers. He believes that Canadians remain apprehensive of international travel amid the COVID-19 pandemic and sought to invest in their vacations domestically.
For areas like Prince Edward County, Noyce-Bryant says she has seen inventory and days on the market increase in recent months, but prices have not recovered from their pandemic highs.
She says there is still demand from buyers who want to live in PECs but missed the initial wave or were intimidated by the multiple-offer craze of recent years.
Royal LePage says larger inventory and less competition in the recreational market could push average prices down 3.0 percent year-over-year in 2023.
Alexander says he expects the cottage and cabin market to remain busy in 2023, but not necessarily with the enthusiasm of the past pandemic.
With recession expected to hit the economy in 2023, he notes that recreational properties are often the first to go when money gets tight and Canadians feel the pinch of rising mortgage costs.
Alexander also anticipates that some buyers who jumped into cottage life during the height of lockdown restrictions may reconsider their plans and move back to the city as in-person work returns and downtown core life returns. Come
“I think some of the people who made those decisions full-time in rec markets may decide it is time to move on,” he says.
