Government Seeks Ban on Foreign Real Estate Buyers

Few things are more frustrating for prospective homeowners than to find themselves in a bidding war with buyers willing to add to the asking price.

Even more daunting is when these buyers are ready to pay in cash. Now add one more variable that has the potential to stoke a range of social, class and nationalistic resentments: Your rival buyer is a rich foreign national with cash.

Even at this point, there’s the potential for indignation to reach a whole new level. What if the buyer who just snatched your future dream home from the market is not a rich, cash-laden foreign buyer at all, but a corporate entity based abroad? It could be this institutional buyer doesn’t know anything about the GTA real estate market beyond what’s printed on a spreadsheet.

Now imagine the worst: What if the corporation is controlled by a Dutch dilettante who believes Molson is a cheese, or a Texas billionaire who thinks the Edmonton Oilers have perfected carbon-neutral fracking?

Canada’s federal government says it may have the answer to the sum of all these fears. It is proposing a two-year ban on property purchases by foreign buyers. This initiative is unfolding against a backdrop of huge price increases for homes, especially in the Toronto and Vancouver markets. The Canadian Real Estate Association reports that the average sale price for a home in the nation has now reached $816,720 Canadian dollars, up 20.6 percent from last year and 44 percent higher than before the outbreak of the pandemic.

The proposed ban would not apply to permanent residents, buyers legally working or studying in Canada, or asylum-seekers. All other non-citizens would be barred from purchasing property. The same would be true of corporations that are not controlled by Canadians.

In one sense, the plan is not a dramatic departure, but rather part of an evolution in government response. Provincial governments in Ontario and British Columbia have already established an added tax of 20 percent for purchases by foreign buyers. Abroad, New Zealand introduced a comprehensive ban more than three years ago.

In Ottawa, the main parties are all on board with the idea of obstructing or dissuading foreign buyers. The Liberals and Conservatives both promised a ban in the last campaign, and the New Democratic Party has proposed a B.C./Ontario-style 20 percent tax nationwide.

Critics say the plan is window dressing, and won’t have a real impact on prices. That’s because foreign buyers aren’t as common in the real estate market as many people believe. A study by Baker Insights Group revealed that foreign purchases represented just 1 percent of all Canadian property sales in 2020. At the high end — very rich individuals and corporations — foreign buyers will prove adept at finding loopholes in the legislation, some critics say.

Among the skeptics is Tsur Somerville, a professor at the Sauder School of Business at the University of British Columbia and director of the UBC Centre for Urban Economics and Real Estate. He told the Spanish-language newspaper EL PAÍS: “We have already seen these taxes in cities where there is a lot of interest, such as Vancouver and Toronto. They had little effect. The housing crisis is, overall, an issue linked to domestic factors, although it is easier to point the finger elsewhere instead of at ourselves.”