Amendments to Canada’s Housing Ban on Foreign Buyers

Wahi spoke to experts about what Canada’s tweaked foreign buyer rules mean for the housing market.

By Brennan Doherty | 4 minute read

The rule changes include relaxing the limit of foreign investment or control in a new residential project from 3% to 10%.

Last month’s changes to Canada’s moratorium on foreign real estate purchases frees up more exemptions for non-Canadian buyers, but experts say it is far too early to tell whether the modified policy will improve housing affordability across the country. 

The federal government promised in their 2022 annual budget to ban real estate purchases by non-Canadian citizens or permanent residents for two years. Foreign investment in residential development projects would be capped at 3%. Newcomers granted refugee status, non-Canadians who inherited property, and foreign buyers in certain remote areas were exempted from the new rules. 

“We will prevent foreign buyers from parking their money in Canada by buying up homes,” the federal government promised in its initial announcement of the policy. “We will make sure that houses are being used as homes, rather than as commodities to be traded.” 

Yet relatively few Canadian residential properties are owned by foreigners. According to Statistics Canada data from 2020, just 2.6% of all properties in the Greater Toronto Area and outlying cities were owned by non-residents. In a set of recent modifications to the moratorium, Ottawa is allowing more ways for non-resident buyers to own their own homes while still effectively barring absentee ownership.

Effective March 27, Housing and Diversity and Inclusion Minister Ahmed Hussen adjusted its regulations to allow anyone holding a work permit to buy residential property, even if they aren’t a permanent resident or citizen. The change would only apply to newcomers who have at least six months left on their work permits. 

“It’s going to give the right people the opportunity to buy,” says Nathan Adorjan, broker of record at Wahi. “The real concern was people who are not looking to live in this country, and just buying and keeping it vacant.” 

The new rules also relaxed the limit of foreign investment or control in a residential project from 3% to 10%. Mark V. Lewis, a partner at Bennett Jones LLP in Vancouver, said the original rules were intended to lower housing demand, but ended up affecting the supply side. 

“If you were a developer in Hamilton, and you had an investor from Detroit who was in for 6% and providing some of the capital for your project — all of a sudden, you’re now deemed to be a foreign buyer,” Lewis explains.

The Canadian Home Builders Association described the original rules as “severely hampering our industry and the production of new housing supply” in a March statement. 

Increasing the restriction to 10% was helpful for homebuilders, Lewis said, but it was ultimately a compromise with the federal government. In submissions to the federal government on the foreign buyer moratorium, the real estate sector was asking for a threshold of around 20% to 25%. 

The original foreign buyer moratorium prohibited the purchase of any vacant land zoned for residential and mixed use development by non-Canadians, a rule that bureaucrats acknowledged in the original regulations published last December would be very hard to enforce. “It caused a lot of problems,” Lewis says.

As of the end of March, foreign buyers can not only buy vacant land zoned for residential and mixed use, but they can also buy residential property for the purpose of development. This would allow a non-Canadian investor to, for example, buy a house for the purpose of knocking it down and building a mid-rise apartment or multiplex. 

Ultimately, the federal government pitched the revised regulations as a compromise between housing newcomers to Canada and keeping out absentee investors. “These amendments will allow homeowners to put down roots in Canada through home ownership and businesses, to create jobs and build homes by adding to the housing supply in Canadian cities,” Minister Hussen said in a statement last month. 

But it remains to be seen whether the foreign buyer moratorium will actually bring down housing demand. Lewis isn’t sure, and points to the 50% foreign buyer tax levied against foreign homebuyers in the Lower Mainland, Victoria, Kelowna, and other expensive areas of B.C in 2016. These areas continued to see record sales growth, even despite the pandemic. 

“I don’t know that the foreign buyer tax has had a significant impact on it,” Lewis says. In October, the Ontario government announced a foreign homebuyer tax of its own for the entire province, but only set it at half of B.C.’s rate — 25%. 

Meanwhile, John Peloza, a senior analyst at Bridgemarq Real Estate Services, says that the foreign buyer moratorium simply addresses demand. It doesn’t do anything about the fact Canada’s rate of homebuilding is far lower than it needs to be, and demand for housing continues to rise. The moratorium is also just that — a moratorium. It isn’t a complete ban, and it is set to expire in 2025. 

“In general, these temporary bans on foreign buyers are not going to solve the problem,” Peloza says. Rather, the solution needs to come from building more homes and more housing investment overall. “These amendments could help if it increases investment,” Peloza continues, “but we have to see what type of investment happens there.”