The measure was taken to stem the outbreak. She arrives too late.
” We will temporarily ban the purchase of properties by foreigners in the Canadian residential market to ensure that Canadians have greater access to purchase “, had promised Justin Trudeau in his electoral platform of 2021. The law on the prohibition of the purchase of residential buildings by non-Canadians presents itself nevertheless as the surprise of the New Year for investors. Foreign nationals can no longer, from 1er January, buy real estate in Canada for the next two years. The only exception is permanent resident immigrants. In the event of non-compliance with the law, a foreign investor will pay a fine of 10,000 dollars and his property may be put up for sale.
The Liberal government implemented these measures following the mad rise in stone prices in Canada in recent years. According to the Canadian Real Estate Association, quoted by Radio Canada, real estate prices increased by 21% in 2021! While speculation has a lot to do with it, the excessive ease of obtaining credit and the lack of housing construction have driven prices up. Canada welcomes 450,000 immigrants each year, without having sufficient housing.
Turnaround
Besides immigration, Hong Kong and Chinese investors have bought so much real estate in Canada that British Columbia in 2018 imposed a 20% tax on real estate purchases by foreigners. Just like Alberta and Ontario. These measures had not stemmed the rise in prices, even if Ottawa has also imposed since 1er January 2022 an annual tax of 1% on the value of vacant homes to non-Canadian owners.
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The Trudeau government’s ban, however, comes just as the market is turning. To fight inflation, the Bank of Canada raised interest rates in 2022 from 0.25% to 4.25%. ” The exceptional magnitude of the rise in interest rates defied all predictions (…)and shook the market “, told theMontreal Journal Charles Brant, director of the market analysis department of the Professional Association of Real Estate Brokers of Quebec.
Rising mortgage rates have driven down the number of buyers, unable to pay higher monthly mortgage payments. Many real estate projects and construction starts have been abandoned. According to a Statistics Canada report published at the end of November, “the average value of real estate has decreased by 5.2% in the second quarter of 2022“and the cost of paying off mortgages”increased by 11.4% in October compared to the same month in 2021for households. Foreign buyers who have the means will still be able to fall back on the purchase of summer chalets, unaffected by the new law.
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