August 19, 2022

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Why Canada bans foreigners from buying a home in the country for two years

For the next two years, foreigners will be barred from buying homes in Canada.

The announcement was made by Prime Minister Justin Trudeau in an effort to stabilize prices in the country’s real estate market, one of the world’s biggest housing problems.

The price has gone up More than 20%This was an average sale of a home of approximately US $ 650,000, which is nine times higher than the average household income.

But real estate analysts say it’s not clear if such a ban could fix the problem.

Data on buying a foreign home in Canada is scarce, but they do represent a small segment of the market.

According to Ben Myers, head of consulting at Bulben Research & Consulting in Toronto, 9% of purchases made by foreigners by 2020 were just 1%. U.S. 2015 and 2016.

“This is a very small number, let’s face it, people who really want to buy … will find alternative ways to do so,” he added.

As part of the rules governing market growth, the researcher believes that higher housing costs reflect a stronger population growth and supply shortfall.

Problems have worsened since the onset of the epidemic in 2020, with Canada lowering interest rates, stabilizing borrowing costs and increasing demand to stabilize the economy.

This has happened in many countries, but according to OECD data, the disconnect between house prices and income in Canada is one of the most dramatic in the world.

The ban on foreign buyers exempts permanent residents and foreign students and workers and those who buy their primary residence.

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Trudeau promised to tackle house prices during his election campaign last year.

In addition to the temporary ban on foreign buyers, his administration released a budget proposal on Thursday allocating billions as fuel for new construction and proposing new schemes such as a tax-free savings account for first-time buyers.

According to some figures, Trudeau has also discussed banning some bidding process that is approximately in favor of investors in the five homes purchased since 2014 in Canada.

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Trudeau’s plans are echoed in personal decisions in other Canadian regions and provinces.

In Ontario, for example, provincial premier Duck Ford recently announced plans to increase existing taxes on foreign buyers from 15% to 20% and expand to the entire province beyond Toronto.

While overseas purchases are not the main source of affordable price issues, at least taxing raises redistributable revenues for such problems, says Steve Bomarai, director of home policy firm Focus Consulting.

“If you ban them, it doesn’t really have much of an impact on controlling the rise in house prices and dropping revenues,” he says.

New Zealand introduced a similar measure in 2018 banning foreign buyers.

Justin Trudeau has promised to fix Canada’s housing problemGetty Images

Paul Kershaw, prof University of British Columbia, He did not think Trudeau’s proposal would curb inflation or significantly reduce the cost of living.

“It is not clear whether these measures are sufficient to address Canada’s high and rising housing prices,” he says.

Bomarai expects prices to fall in the coming months as the central bank raises interest rates.

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The Canadian real estate market is particularly vulnerable to such moves because many buyers rely on five-year mortgages rather than the typical long-term mortgages common in the United States and other countries.

But he warned that higher interest rates would only make housing cheaper for potential buyers trying to enter the market.

In the long run, he expects hot markets like Toronto and Vancouver to be dominated by tenants because regular buyers will be driven out of the market.