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Canada Considers Ban on Foreign RE Buyers

In an attempt to counteract Canada’s rising home prices, Prime Minister Justin Trudeau has proposed a two-year ban on purchases by foreign investors.

OTTAWA, Canada – Canadian Prime Minister Justin Trudeau proposed a two-year ban on most foreign buyers purchasing homes in the country to try to tame an overheated housing market.

Canadian home prices have climbed more than 50% over the past two years. The average home in Canada was valued at about $693,000 in U.S. dollars in February, more than nine times the average household income. To prevent real estate prices from escalating further, Trudeau’s administration proposed a ban on foreign buyers to ease some of the buyer demand.

Trudeau’s proposed ban on foreign buyers, however, would exempt students, foreign workers or foreign citizens who are permanent residents of Canada, Bloomberg reports.

Housing analysts, however, don’t believe the ban will do much to cool Canada’s surging housing market. Ben Myers, president of the advisory firm Bullpen Research & Consulting in Toronto, told the BBC that foreigners comprised just 1% of purchases in 2020 in Canada.

Other analysts agree that the impact will be small.

“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 REC Canada, a real estate investment firm, told Bloomberg. “I don’t think a two-year Band-aid is going to have an impact on what’s a fundamental lack of supply.”

Myers says Canada’s quickly rising housing costs reflect a growing population and a shortage of homes, partially due to a restriction in development – not competition from foreign buyers.

Housing markets are climbing across the globe. The gap between home prices and incomes has been evident elsewhere in the world – including the U.S. – but housing analysts say Canada’s gap is among the worst.

Beyond banning foreign investments for a limited time, Trudeau’s proposal also calls for devoting billions to add new construction and advocates for new programs such as tax-free savings accounts for first-time buyers.

In 2018, New Zealand proposed a similar ban on foreign purchases that applied to its residential real estate market. A year later, housing data revealed the number of properties sold in New Zealand had fallen to the lowest in June 2019 over the last five years. The ban did prompt a decline in foreign investment, but it did little to improve affordability, economists noted at the time.

Source: “Canada Proposes Foreign Buyers Home Real Estate Ban,” BBC News (April 7, 2022) and “Canada to Ban Foreigners From Buying Homes as Prices Soar,” Bloomberg (April 6, 2022)

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