Canada's Foreign Buyer Ban
Beginning in the new year, non-Canadians will be subject to a two-year ban on purchasing homes in Canada.
Many have said it wouldn’t impact the real estate market as foreign buyers represent a small number of annual transactions. But the impact could be severe for individuals associated with facilitating a foreign buyer’s purchase of Canadian property.
“To enforce the ban, anyone who knowingly helps a non-Canadian to buy a house could face fines of up to $10,000. In addition to fines levied against the non-Canadian buyer,” says Romana King, bestselling author and senior finance editor at Finder. “This new legislation makes it costly for any person involved in a real estate transaction to help a non-Canadian directly or indirectly purchase Canadian residential real estate.
“This means lawyers, notaries, realtors, and financial brokers face a $10,000 fine if they knowingly help a foreign buyer or corporation to purchase Canadian residential property before Jan. 1, 2025. And that’s $10,000 per offence! Given the large financial consequence — and the number of reputable people and media outlets discussing this issue — it’s doubtful that real estate professionals are unaware of this two-year ban. Every legal firm representing a builder or developer would have been in direct communication with their clients starting as early as late June 2022 after the proposed bill was officially passed.
“What is uncertain is how the regulations will be enforced and whether or not legal challenges will hinder the federal government’s ability to enforce and collect their dues. Various legal firms across Canada pointed out that while this ban is passed and will be enforced by the federal government, the legislation of residential real estate is actually a provincial mandate. This could mean challenges to this new ban — and uncertainty about whether or not the fine can and should be collected.”
What does all this mean for realtors and other real estate professionals?
“Ignoring the smallest bad-apple segment of these professions — those that fraudulently try to skirt the law — the big shift will be to adapt their business strategy,” adds King.
“For realtors, developers and builders whose primary customers are overseas buyers, it may mean eating the cost of the fine in order to do business. Let’s face it, paying $10,000 to the federal government on a $50,000 commission is steep, but it’s still $40,000 in earnings (multiplied by hundreds of units) that helps keep the lights on. We’ve seen this behaviour before, with some real estate brokerages fined year after year for violations before finally having their license revoked.
“Others will help foreign buyers become ‘exempt’ by using legislative exclusions, such as students or those who marry and purchase with buyers exempt from the prohibition. Finally, the vast majority of realtors will just double down on servicing their Canadian-resident clients and use their overseas contacts to help build their new immigrant client base.”
Pierre Leduc, spokesperson with the Canadian Real Estate Association, said the federal government still needs to publish the regulations surrounding the legislation.
“That means, apart from a maximum fine of $10,000 and that the Minister may apply to the applicable provincial court for a judicial sale order, CREA does not have at this time any further details regarding the regulations themselves, its interpretations, how the legislation will be applied or how it will be enforced,” he said.
According to Canada Mortgage and Housing Corporation, if a non-Canadian is convicted of having illegally purchased property, the superior court of the province in which the residential property is located may order the property to be sold. The Act establishes that any such court-ordered sale will result in the non-Canadian receiving no more than the purchase price paid for the residential property.
“Do third parties, like realtors or lawyers, have a role in enforcing the prohibition on the purchase of residential property by non-Canadians?” says the CMHC on its website explaining the legislation. “As part of their professional duties, realtors, lawyers, and notaries owe their clients an obligation to inform. The legislation does not rely on these professionals to enforce the prohibition. It nonetheless allows for penalties to be imposed on any party found guilty of knowingly assisting a non-Canadian in violating the prohibition.”
Meanwhile, U.S. buyers have buying up recreational property ahead of Jan. 1. A recent Royal LePage survey of U.S. citizens living in border states, conducted by Leger, found that 75 per cent of those who currently own recreational property in Canada said that they made their purchase after the two-year foreign buyer ban was announced.
Of those who purchased following the announcement, 77 per cent stated that the potential impacts of the ban on their ability to buy real estate in Canada after Jan. 1, 2023, influenced their decision to purchase before the end of this year.
Among those surveyed who do not currently own a recreational property in Canada, but plan to make a purchase, 67 per cent said that the current strength of the U.S. dollar has made them more inclined to buy a home north of the border. The primary reasons for wanting to buy a recreational property in Canada are multi-season usability (39 per cent), for retirement purposes (38 per cent), and investment purposes (37 per cent).
“Canada’s winter recreational regions are a draw for our neighbours to the south who are looking for a place to live and play in the winter months. The strength of the U.S. dollar, investment opportunities and relative affordability of recreational properties have enticed buyers from south of the border,” says Pauline Aunger, broker of record, Royal LePage Advantage Real Estate. “With its world-class skiing resorts and picturesque winter landscapes, Canada will remain a desirable location for recreational buyers from all over the world.”
Toneguzzi, M. (2022) Canada's foreign buyer ban is certain; how it will be enforced is not, REM. Available at: https://realestatemagazine.ca/canadas-foreign-buyer-ban-is-certain-how-it-will-be-enforced-is-not/ (Accessed: December 12, 2022).