Jul 31, 2023

Play Video Toronto’s once-booming market for properties priced between $10 and $20 million has cooled significantly, with such homes now taking an average of 112 days to sell, compared to just 40 days a year ago. Engel & Völkers said the foreign homebuyer ban is a primary factor behind the shift, as those purchasers were traditionally the primary clientele for the lucrative market segment. Article content Ottawa last December unveiled the Prohibition on the Purchase of Residential Property by Non-Canadians Act, which went into effect for two years starting Jan. 1, 2023. Any violation of the ban results in a fine of $10,000, although there are certain exceptions. The primary objective behind the act was announced in the Liberal government’s Budget 2022 and summarized on its website. “As a temporary measure to help stabilize the housing market coming out of COVID-19, we will ban foreign money from purchasing a non-recreational, residential property in Canada for the next two years, unless this purchase is confirmed to be for future employment or immigration in the next two years,” the Liberal government said on its website. Financial Post Top Stories Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc. Email Address Sign Up By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails or any newsletter. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300 Thanks for signing up! A welcome email is on its way. If you don't see it, please check your junk folder. The next issue of Financial Post Top Stories will soon be in your inbox. We encountered an issue signing you up. Please try again Article content Article content “This will also allow us to work with provinces and municipalities to develop a framework to better regulate the role of foreign buyers in the Canadian housing market so that this money does not deter housing from being available for and used by Canadians.” Shortly after the regulation came into effect, it underwent several amendments to provide exceptions to allow certain types of temporary workers to buy homes despite their non-citizen or non-permanent resident status. The prohibition on the purchase of vacant land was also lifted, enabling non-Canadians, including foreign investors, to buy vacant properties for potential development purposes. Commercial entities seeking to invest in residential properties for development purposes were also granted an exception. Advertisement 4 Article content In implementing the ban, the Government of Canada said it had consulted with government partners, stakeholders and Canadians to develop the regulations. No low-income family is going to be impacted by a $2-million sale in Toronto Larry Mohr But Larry Mohr, chief operating officer and a licensed partner at Engel & Völkers Canada, said it provided advice opposing the ban on properties in the luxury market. “In our submission back when they were taking submissions last summer, we suggested that they set a cap on the price so that properties over, say, $1 million that would not be subject to the ban because the purpose of the policy was to free up housing for affordable housing for low-income families,” he said. “No low-income family is going to be impacted by a $2-million sale in Toronto or a $2-million sale in Ottawa. No low-income families are in the market for that property. So, you’re really distorting the luxury end of the market when there’s really no need to do that.” Advertisement 5 Article content Although some professionals may qualify for exemptions from the foreign homebuyer ban , they still face challenges due to provincial taxes. For example, Ontario imposes a non-resident speculation tax of 25 per cent, which, according to Anita Springate-Renaud, a broker of record and licensed partner at Engel & Völkers Toronto Central, dissuades many professionals from investing in real estate while working in Canada. “The whole jumping through hoops has made it very cumbersome and expensive to buy,” she said. “Even if you hire a lawyer to wade through all that, that’s also an added expense. Why would someone deal with that when you can go to another country and not have to do any of that, and where you’re welcome?” Advertisement 6 Article content The ban’s consequences also extend beyond the real estate sector since it could potentially create friction for companies hoping to attract top-tier global talent to Canada, Springate-Renaud said. High-net worth professionals , who were once drawn to the idea of investing in Canadian properties, are now left with no choice but to rent during their stay, as purchasing a home becomes financially unfeasible. “We have a lot of athletes and executives who are renting as opposed to buying because, first of all, even if they have their work permit, the speculation tax is a huge knot in the process,” she said. “At least in Toronto, you have to have your deposit, your four-per-cent land transfer tax, and your 25-per-cent speculation tax all upfront.” Advertisement 7 Mohr also said the situation could have serious repercussions beyond real estate, and even lead to potential retaliation from Canada’s trading partners, which might adversely affect Canadians and harm the country’s reputation on the global stage. “It’s just not a good look for Canada as a small open economy and a trading nation,” he said. “If a similar policy was implemented against Canadians, for instance, if Florida came out and said we’re not gonna allow foreigners to buy residential real estate in our jurisdiction, there would be an outcry from Canadians. Yet, we think nothing of Canadians imposing the same restriction on them.”