Regardless of where they stand on the political spectrum, both the Conservatives and the Liberals claim that, if elected, they will ban foreign buyers Canada for the next two years. It is of course likely that one of these parties will win the 2022 Canadian provincial election.
It’s rare that the Liberal government and the Conservative government agree on anything, but they both have exactly the same policy here. So I think it is very interesting.
In this article, I will go over 3 points:
- What percentage of Canada is currently made up of foreign buyers?
- Will housing prices really go down?
- If implemented, what segment of the market would be most affected?
1、What percentage of the market is already made up of foreign buyers Canada?
The statistics, in Canada, the most recent information I could find says that about 4.3% of purchases are made by foreign buyers Canada right now. If we round that up to 5%, or even if we double it and say the real figure is 10%, would it have an impact on home sales prices?
Prior to this new plan, Toronto has had a tax on foreign buyers since about 2017. Vancouver and surrounding areas have had it since about 2016, which started at 15%, now it’s at 20%. Toronto is at 15%. We’ve talked to some of our foreign buyers about this tax, and they told us that they’re willing to accept the tax. Just to be clear, since these taxes were introduced in Toronto and Vancouver, housing prices have not become more affordable. They’ve skyrocketed. Clearly, a tax is not the answer here, but will a permanent ban be the answer?
2、Will the foreign buyers Canada ban for the next two years bring down housing prices?
I think the answer is yes, no, and maybe. Year over year, we’ve seen Canadian home prices go up 10-15%, depending on which market you’re in. If they only went up 12-13% last year, would that have a direct impact on the price of the home you can afford? Because I think we’re not focusing on the main problem.
The foreign buyers Canada ban is an attractive policy for all these parties because foreign buyers can’t vote in elections. So the average Canadian, if you tell them that if we ban foreign buyers, housing prices will be more affordable. They say, okay, I’m sure that sounds good. And that’s why the Liberals and Conservatives may put this policy in place. But on the surface, what’s really happening is that the foreign buyer ban will have an impact on the market. I’m not sure if it will have enough of an impact to actually change affordability levels across Canada. The main issue here is supply and I’ve been saying that all along. If you took out all the foreign buyers, there still wouldn’t be enough housing available in Canada for locals to buy. You would feel the same frustration on the streets. Can you believe what is happening to real estate prices? We just aren’t building houses fast enough, and that’s a reality. Whether the Liberals or Conservatives win, they are not going to implement this policy overnight. There will be a period of preparation. And how many transactions do you think there will be if the foreign buyer ban is announced three months in advance? There will be a ton, which will drive up home prices.
Will it lower prices? Maybe a little bit. But will it lower prices enough to change what the average Canadian can afford? I don’t think so. Another thing I want to mention here is that we could put a policy like this in place. I think most Canadians would agree with that. Let’s say it was the other way around. Let’s say the “snowbirds” who own property in the United States or in Portugal or who travel and live can do that, but only half the year. In these other countries, let’s take the United States as an example. The Biden administration sees that Canada has banned all foreign buyers for 2 years, so that includes Americans. What if it was the other way around if the States told us the same thing? That would cause a stir. So remember, it is not always a one-way street. If we start implementing this policy, other countries will probably eventually respond as well.
3、What segment of the market would be most affected if foreign buyers Canada were banned for two years?
I can say with almost certainty that it would be the pre-construction side of the market that is affected. Many investors put their money into projects that will be finished in four years, therefore, the future investments will be affected by a two year ban.
In terms of resale properties, I see a lot of locals buying properties, first-time buyers, and people who are downsizing, it’s not always just investors. I know realtors, I’ve traveled to Hong Kong and sold preconstruction projects to people there, showing them how great the opportunity is to invest in Canada, especially in Toronto. So I think the new construction side of the market would be the hardest hit, as prices may decrease should a foreign buyers ban take effect.
If you look at the resale of a condo in downtown Toronto, let’s say you’re paying $1,100 a square foot, a building across the street that hasn’t been built yet. They’re asking $1,500 a square foot. A very inflated price. Buyers are going to be put off of these high priced pre construction condos due to future uncertainty.
So I think the preconstruction market would take a big hit if the market was closed to foreign buyers Canada.
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