Finance Minister Chrystia Freeland announced on Thursday that most foreigners would be barred from purchasing real estate in Canada for the next two years in an effort to combat the housing crisis. Home prices in Canada have risen over 50% since 2020 as demand steadily increases and available inventory diminishes.
The Bank of Canada announced a record jump in housing costs this past February, with the benchmark price across the provinces reaching C$869,300. For years foreigners have seen Canada’s rising real estate market as a safe haven to park money. Chinese investors found it particularly lucrative when converting the yuan to CAD. The Trudeau Administration previously placed a 1% tax on vacant foreign-owned land, and as I warned, any tax in place will remain in place and likely rise. Vacancies are an issue, but they are not the lone culprit for this trend.
“I don’t think prices are going to fall as a result, though I do think it takes away at least some of the competition in what is the most competitive market in Canadian housing history,” Simeon Papailias, founder of real estate investment firm REC Canada. “I don’t think a two-year band-aid is going to have an impact on what’s a fundamental lack of supply.” This is the general consensus in Canada as people simply want affordable housing, and believe these measures will have a positive impact on prices. There is a good chance this ban will last beyond the two-year period as lawmakers remain misled on what is driving the real estate markets.
A few convenient loopholes make this law an empty gesture to appease those blaming foreigners for real estate inflation. The ban does not prohibit purchasing through corporations, so Vanguard and BlackRock can continue profiting while individuals face the burden of this new law — but only certain individuals without the money to bypass the system. Permanent residents, foreign workers, and students will be excluded from the law. Foreigners who plan to buy their primary residence in Canada are not prohibited from purchasing property. So Canada is not aiming to eliminate all foreign real estate investments; the government simply wants it to appear that they are working to lower real estate costs when this measure will do no such thing.
The post Canada Bans Foreigners from Real Estate Market but Misses Loopholes first appeared on Armstrong Economics.
