What’s all this talk of the foreign buyer ban? What does it mean? Why did Canada need it? Will it actually help? What are the loopholes? And who, pray tell, will reinforce it?    

In an effort to make housing more affordable for Canadians, effective Jan 1, 2023, the federal government has prohibited anyone who isn’t a Canadian citizen or permanent resident from buying residential real estate for two years.   

The ban also includes non-Canadian company owners, which prevents foreign individuals from buying real estate through their corporations to avoid the prohibition. 

So, why did Canada need this…or did they? Housing prices have been steadily increasing for several years, making it impossible for most Canadians to buy property. 

Over the past few years, home builders stopped building as Covid had people hermitting in their homes instead of going to job sites, and building materials jacked up to unfathomable prices as the supply chain took a beating.  

This contributed to a decreased supply of available housing, which led to bidding wars, extreme buyer’s anxiety, and skyrocketing costs. Combined with domestic and foreign speculation and a few other factors, the country’s housing market has propelled to unprecedented highs.  

Arguably, a fast way to increase supply per capita and curb such insane bidding wars is to decrease the number of potential buyers — particularly the super rich ones who live outside Canada who can afford to outbid us.  

This is precisely what the Liberal Party promised to do in the 2021 election. Mark this down in the history books as it’s a campaign promise that the government actually made good on—for good or for worse.   

The initiative was rolled out in the 2022 federal budget: A Plan to Grow Our Economy and Make Life More Affordable which stated:  

“We will do everything we can to make the market fairer for Canadians. We will prevent foreign buyers from parking their money in Canada by buying up homes. We will make sure that houses are being used as homes, rather than as commodities to be traded,” – Budget 2022. 

The ban was passed by Parliament on June 23, 2022 and came into effect on January 1, 2023. 

Critics say that this won’t help the affordability crisis as foreign buyers represent a small fraction of purchasers in the country. Plus, B.C. already has a 20% foreign buyer’s tax, and Ontario raised it’s non-resident speculation tax on homes purchased by foreign nationals to 25% in October, 2022. Interestingly, the Bank of Canada says that domestic investors make up roughly one-fifth of purchases in recent years.

So, what will happen over the course of the 2-year ban?  The government intends to develop new plans to better regulate the role of foreign buyers in the housing market to ensure housing is available for and used by Canadians. 

Let’s hope they come up with something brilliant!

In short, foreign nationals can still purchase:

•   Recreational properties like cottages and lake houses. 
•   Larger residential buildings with more than 3 units.
•   Any residential property that are not located in either a census agglomeration or a census metropolitan area. 

A foreign national may think, “Eureka! I’ll buy a cottage and convert it into a residential property!”  Not so fast…the ban applies to properties that aren’t considered as residential at the time of purchase, but that could be developed into a residential property at some point.  

Oddly, the law doesn’t prohibit the purchase of larger buildings with more than 3 units. “Residential property” is defined in the Act as buildings with 3 homes or less, as well as parts of buildings like semi-detached homes or condo units. 

Also, residential properties outside of a census metropolitan / agglomeration area are exempt from the ban.  This means that municipalities with a core population of less than 10,000 people will likely not be subject to the legislation. 

The CMHC does a great job at detailing these exceptions. 

How to get around the ban?  Marry a Canadian. Non-Canadians and refugees can purchase residential real estate with a spouse or common-law partner who is a Canadian citizen, permanent resident, or person registered as an Indian under the Indian Act or a refugee.    

Another  exception to the ban is for temporary residents either studying or working in Canada. There is, however, a ton of small print which certainly doesn’t make it easy. Students must be enrolled in an authorized program, filed income tax for 5 years, and been in Canada 67% of the time during each of the 5 years prior to the purchase. Temporary residents with a work permit or authorization to work in Canada must be working full time for the past 3 years, filed income tax for those years, and must not have previously purchased a residential property in Canada since January 1, 2023.

That said, there are penalties for trying to sneak around the ban, so keep reading.

The ban is certain, however how it will be enforced is not so clear.

Technically, it’s  enforced by the Canada Mortgage and Housing Corporation (CMHC), but seeing as all legal real estate purchase agreements are not vetted by them, it’s truly up to the parties involved in the transaction to keep their noses clean as to avoid the penalties. 

The fine is $10,000 for anyone who knowingly assists a non-Canadian violate the Act, plus additional fines for the non-Canadian. Also, the court may order the sale of the property and they won’t receive more than what they paid for the property.

This means that realtors, lawyers, notaries, and financial brokers will face this fine if they knowingly help a non-Canadian buyer or corporation directly or indirectly purchase Canadian residential real estate. 

Here’s the tricky part:  while the ban is enforced by the federal government, the legislation of residential real estate is actually a provincial mandate. This may cause issues with the feds being able to collect on these fines as the provinces may have conflicting laws about whether the fine can and should be collected. 

Let’s be honest, a $10,000 fine is not much for developers, builders, and realtors whose primary customers are overseas buyers, when they stand to make $50,000 in commission. The $40,000 profit will still be worth the risk for many of them—especially when multiplied by hundreds of units. 

This type of thing has happened before, with some real estate brokerages fined year after year for violations before finally having their license revoked. 

Those who are prepared to take the financial risk, however, may be more trepidatious to take the reputational hit on social media or the news considering the number of reputable sources and media outlets discussing this issue. 

The ban’s impact on the housing market has been the subject of ongoing debate and analysis, the effects of which remain to be seen as the impacts of increasing interest rates continue to ripple through the economy and inflation—including food prices. 

And let’s not get started on THAT…

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