Canada’s foreign buyer ban has been in effect for hours, so it’s time to start loosening it, no? Just 86 days after passing restrictions on non-resident buyers, the country has quietly loosened restrictions for non-resident investors, and temporary residents. Most likely because the ban was largely just a distraction from the speculation coming from inside the House.
Canada Once Again Allows Foreign Investors To Buy Vacant Land
Canada is reversing course and allowing non-resident home buyers to purchase vacant land zoned for residential or mixed use development. The country stated this will help create housing supply, but the changes emphasized the land could be used for “any purpose.”
The benefits of development are obvious, but what are the negatives? With just two months and no information on beneficial ownership yet, they clearly haven’t studied the impact in one very critical area—land banking.
Land banking is the process of buying and holding land “for development.” It’s in quotes because without a timeline, what isn’t inevitably for development?
Land banking has always been an issue, but it exploded in growth after the global financial crisis (GFC). Low rates met global capital flows, and wealth from around the world began purchasing land virtually everywhere to diversify exposure from a single-market. Even BlackRock was telling wealth managers for Asia’s super rich that places like Vancouver are an ideal store of wealth.
Global capital entering your market is generally a good thing, but it needs to be on the same page. In a country claiming it has a housing crisis and a shortage of vacant land, inviting non-resident capital to use your vacant land as a deposit certificate to redeem (i.e. develop) without a timeline, is certainly a curious choice that can help apply more pressure to home prices.
Canada Loosens Real Estate Rules For Non-Resident Companies
Canada is loosening the rules for non-resident companies to purchase land. Canadian public companies are granted the above exemption, even if they have non-resident control.
Don’t worry, private companies weren’t left out of the rules. The 3% limit on non-resident ownership has been increased to 10%. This would allow companies to have a non-resident principal shareholder.
Canada Loosens Rules For Temporary Residents Buying Property
Rules on temporary residents on a work permit are being lifted as well. The country will now allow any temporary resident with at least 183 days left on a work permit to buy a home. Note, that’s days left on their permit, not a requirement of days spent.
Non-residents weren’t banned from home purchasing before, but they were required to have filed taxes for the preceding five years, be physically present in the country for a minimum of 244 days in each of those years, and the property could not exceed $500,000 in value at the time of purchase.
A big swing of going from 5 years of residency to being able to buy a home on your first day, as long as your work visa is valid for 183 days. Apparently the market of buyers looking to acquire property on a temporary visa before they pay taxes in Canada is a substantial market unfairly penalized.
Canada hasn’t made any other changes to the non-resident home buying rules. The law still permits non-resident purchases of recreational or vacation property, and/or buildings with more than three units. It also only applies to census regions with a population greater than 100,000 people, so most of the country didn’t have any restrictions at all.
Property-like purchases also continue to have few restrictions, and remain largely unregulated. Pre-sales assignments for example can still be bought, and flipped before the development finishes, since it’s not a home until it’s complete. The buyer only has an assignment for that home. Conveniently, assignments aren’t subject to non-resident speculation taxes until the home is complete and transferred.
There’s been little evidence that non-resident speculation has been a significant part of the market since the “foreign buyer mini-bubble” in 2017-2018, largely concentrated in Greater Toronto and Vancouver. BC’s beneficial ownership registry has shown very scarce volumes of buying over the past few years.
Record price growth during the pandemic was largely due to excessively cheap credit, and an explosion of domestic investors. Though that describes the investment strategy of nearly 1 in 4 (38%) federally elected officials, so the ban served as a convenient diversion during the last election.
The announcement that made headlines around the world also served as bragging rights for a promise made, promise kept. Now that no one’s paying attention and rate cuts are forecast by year end, the elected speculators are clearly trying to develop a market. Or at least enough of a market to drum up domestic sales, and bolster prices.