There’s been a lot of discussion about foreign property investors driving up the prices – especially in the Toronto and Vancouver housing market. So we wanted to see how the rest of the world has been dealing with the issue of foreign investments.
Having a population of over a billion people would put any country in a housing crisis, so it’s no surprise there’s a lot of property rules in China – including ones that target domestic owners. Foreigners are allowed to purchase only one property for their own personal use, after having spent one year in the country. After that, if you become a permanent resident, you’re allowed to purchase one additional property for personal use.
Thinking of skirting the restriction using a shell company? Not so fast, the Chinese government conducts regular audits and foreign companies must use the property they reside in, or risk having it taken away.
The Australian government recently appointed a Foreign Investment Review Board to review and approve purchases of residential homes in the country, amid growing concerns that non-residents were driving up prices. The criteria for approval of these residential purchases is murky, but the board isn’t just for show. They have forced the sale of 27 homes, investigated the purchase of 1,300 properties to date, with another 800 on the their list to go.
One of those 27 properties was the massive 63-67 Wolseley Road, which sold for AUD$39,000,000 (CAD$36,500,000) at auction because the owner neglected to mention the corporation that purchased it was owned by a Hong Kong-based conglomerate.
In 2014 a study revealed that 50,000 homes in London were sitting empty, while Londoners were struggling to find affordable housing. There was a lot of discussion on how to best handle the issue, but it wasn’t until last year that they took the first step in actually aiming to curb it. In April of 2015 they passed a law levying a new tax requiring up to 28% of the sale of the property be paid to the government – in June of 2015 they saw one of the largest declines in UK housing prices in months… I’m sure that’s just a coincidence right?
The Swiss have always had strict rules regarding housing, especially foreign ownership, with each canton (that’s a township if you’re not French-Canadian) assigning annual quotas and requiring approval before being sold to foreign owners. If approved, you can use it as a personal residence only, so forget your dreams of being a landlord in Switzerland.
Fun fact, not even the Swiss are allowed to build homes over 1,000 sq. m. without a special permit – so there aren’t a lot of Bridle Path style houses to choose from. Sad, I know.
Mexico established a law in 1917 prohibiting foreign ownership of land within 50 kilometers of the coast or with 100 kilometers of an international border – out of fear that Americans would flood their border (they should have built a wall and made the Americans pay for it). Despite this, a constitutional amendment made in 2013 allows the purchase of land through a legal loop hole called a fideicomisos (trust) ownership, where the bank holds the deed to the property and the foreign owner renews the rights to the land every 50 years.
Hong Kong’s always been a dense city, but it wasn’t until 2010 that they started to really tackle the problem of foreign ownership. Non-residents pay an ad valorem tax that starts at 1.5% on properties under HK$2,000,000 (CA$300k), up to 8.5% HK$20,000,001 (CA$3.3M). Additionally there’s a 15% “Stamp Duty” on the purchase of land. A tax of 10-20% is also levied on anyone that sells a property less than three years after purchasing, effectively preventing flipping. That’s probably why we’ve never seen Flip or Flop Hong Kong.
Yes, foreign ownership restrictions exist in Canada already. Well, kind of. In PEI any non-resident (this includes us in Toronto), can’t purchase more than five acres of land, or more than 165 feet of coast land. While not terribly restrictive (unless you want to build a coastal mansion for a retreat), this does serve as an existing framework to look at.
Additionally Alberta, Saskatchewan, Manitoba, and Quebec have restrictions on the purchase of farmland by non-residents.
Toronto’s Foreign Owners
The real question is would any of the above solve our issue? We looked at the percentage of foreign owned condos in Toronto, and either foreign ownership isn’t as large of a problem in Toronto as we think it is (less than 4%), or the Canadian government is terrible at tracking it. If they’re ineffectively tracking it, how well could they possibly tax it? If you have any suggestions, don’t forget to let us know in the comments.