Canada is one of the world's top destinations for people looking to relocate. It is known to be the most welcoming country for foreigners. However, it has taken a shocking decision of restricting foreigners from buying residential Real Estate here up to 2025!

Why such a bold political step?

Thanks to the pandemic! The aftermath of the pandemic is not in the favour of Canada’s Real Estate sector. The years between 2021-2022 worst affected the country's Real Estate sales, investors, and rents. Hence, the demand for houses kept increasing, but the supply crashed, causing an imbalance. Apart from that, low-interest rates made the matter even worse.

However, Canadian politicians thought that the majority of people owning the country’s houses are foreigners.

“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. “This is leading to a real problem of underused and vacant housing, rampant speculation, and skyrocketing prices. Homes are for people, not investors.”

Therefore, on 1st January 2023, a new regulation that prohibits the majority of foreign homebuyers from purchasing houses for investment purposes for two years was launched.

What are the conditions under these rules?

There are various exceptions to this regulation.

It enables non-Canadian citizens who are immigrants or permanent residents to buy property. Students and migrants are not covered by it.

In addition, the ban does not apply to vacation homes in recreational zones, but only to census metropolitan areas and census agglomerations, which are essentially cities that meet a specific demographic.

Additionally, the law does not apply to couples with Canadian partners.

Will the new regulation bring down prices?

Firstly, Canada has built its reputation as a welcoming multicultural nation and with this ban, it will lose out on its reputation which might cause a slight effect on its sales when the ban backs off after 2 years. Secondly, just 5% of the country’s foreign population are owners of the residential sector. Besides, stamp duty charges in this country are way too high for foreign owners as compared to resident owners. Foreign non-resident buyers are also subject to a 1% annual underused housing tax on the value of their residential property.

Hence, according to Brendon Ogmundson, chief economist at the British Columbia Real Estate Association, this is more of a political move rather than an economic move. He added, “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 doing it: low-interest rates and very low supply.”

Looking at these factors, it is clear that the ban won't cause the intended impact and further bring down the situation. Rather, the Canadian Government should take actionable steps like increasing project construction and also opting for REITs (Real Estate Investment Funds), so that developers could fund their projects and meet the demand.

According to Canada Mortgage and Housing Corporation, close to 19 million housing units will be needed by 2030. According to the plan, 5.8 million new dwellings are needed, which is 3.5 million more than had been planned. The Canadian government should also seek companies who are ready to invest in projects to reach the target inventory.