Will Canada’s housing ban on foreigners impact non-Canadian resident Indians?

Will Canada’s housing ban on foreigners impact non-Canadian resident Indians?

Canada’s decision to extend the ban on foreign home buyers for an additional two years to tackle the issue of housing affordability for Canadians may impact demand among non-Canadian resident Indians. The extension of the ban means that Indian investors may have to look elsewhere for investment opportunities or wait until the ban is lifted, say real estate experts.

A home for sale in Toronto, Ontario, Canada. (Bloomberg)(Bloomberg)
A home for sale in Toronto, Ontario, Canada. (Bloomberg)(Bloomberg)

The Canadian government on February 5 extended a ban on foreign home buyers for two additional years in an attempt to make more homes available and affordable for its own citizens. This move is expected to lead to investors considering alternative investment avenues in other countries, real estate experts feel.

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The government had earlier prohibited non-Canadians from buying residential real estate in 2022 and the measure was to expire on Jan. 1, 2025. That date has now been moved to Jan. 1, 2027.

“For Indian real estate investors, this extended ban could have several implications including reduced investment opportunities and a shift in their focus on investment. Canada has been a popular destination for real estate investment due to its stable market, strong property rights, and potential for appreciation. The extension of the ban means that Indian investors will have to look elsewhere for investment opportunities or wait until the ban is lifted,” said Ashwin Chadha, CEO, India Sotheby’s International Realty.

Countries with similar economic stability and growth prospects, such as the UK, Australia, or certain European nations, might see an increase in interest from Indian investors. This could also lead to a deeper exploration of domestic opportunities within India itself, potentially boosting the local real estate market, he said.

A large portion of Indians reside in Ontario, British Columbia, and Alberta. Canada’s financial hub, Toronto, is in Ontario, and Alberta has the oil and gas industry.

While the extension of Canada’s ban on foreign home buyers may limit immediate opportunities for Indian investors, it could also encourage a strategic pivot to other markets and investment types. It underscores the importance of understanding and adapting to international regulatory environments in global real estate investment, Chadha added.

According to Canadian media reports the annual national benchmark home price in December 2023 was C$730,400 ($542,500), an increase of 36% in five years. It’s C$1.2 million in Greater Vancouver and C$1.1 million in Greater Toronto.

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According to a news report published in the National Post website, the percentage of foreign homebuyers is less than 6% in Canadian cities such as Toronto and Vancouver.

The Canadian Real Estate Association (CREA) has said in a statement that while it supports the government’s desire for housing to be first and foremost used by Canadians, there are other policy measures that could better achieve the intended policy objective without frustrating supply increases. “We believe the federal government should focus its efforts on policies that support the construction of more housing across the entire continuum,” it said.

CREA is one of Canada’s largest single-industry associations and works on behalf of more than 160,000 realtors.

All about the Non-Resident Speculation Tax and other levies in Canada

Canada also imposes what is known as a Non-Resident Speculation Tax (NRST). “It is like stamp duty and is also referred to as the Foreign Buyers Tax. This tax is to be paid by foreign buyers when purchasing a property anywhere in the province of Ontario or in certain British Columbia regions. The NRST is 25% in Ontario and 20% in B.C,” said a real estate expert.

According to Jeff Levy, Managing Partner, Levy Zavet Lawyers, a Canadian law firm, the non-resident speculation tax is not a federal/national tax on foreign home buyers. It is provincial, and each province may have their own. For example in Ontario that tax is now 25% for homes bought after October 25, 2022, and applies to all of Ontario (whereas before it only applied to homes in the Greater Golden Horeshoe region of Ontario)

“If you are not a permanent resident or citizen of Canada you would pay the tax if you entered into a purchase agreement before January 1, 2023, otherwise the federal/national foreign buyer ban would entirely prevent you unless you fall under one of the exemptions such having a student visa or work permit/visa, this being your first and only home in Canada that you are purchasing (for students the property purchase cannot be greater than $500,000), and you still have at least 183 days remaining on the visa/work permit (regardless if exempt from the ban you would still need to pay the tax),” he explains.

The speculation tax is also refundable if you get your permanent residency. In addition to NRST exemptions, a rebate of previously paid NRST may be available if certain conditions are met. For home purchases made on or after March 29, 2022, the only rebate available is the Permanent Resident NRST Rebate.

To be eligible for this rebate, the foreign purchaser must:

-Have become a permanent resident within four years of the home’s purchase date;

-Own the property as a sole owner or hold the property jointly with only their spouse; and

-Have lived in the home, with their spouse, if applicable, as their principal residence throughout the period starting within 60 days of the home purchase date, ending on the rebate application date or date that rebate conditions are met, whichever is later.

Where the spouses jointly own property, assuming all other applicable conditions are met, they are eligible for the rebate once one spouse becomes a permanent resident of Canada, he said.

The tax and ban only applies to residential properties

“The ban on foreign home buyers does not apply to commercial and multi-residential units, allowing interested investors to pursue such properties without restriction,” said Jagmohan Singh Nanda, barrister, solicitor and notary, Nanda & Associate Lawyers, a legal firm based in Ontario.

“People need to remember that this is not an absolute ban. There are some exemptions and if you satisfy those conditions, you can buy residential property in Canada. This extension on the ban may also impact some international students whose parents purchase properties for them in Canada, ” he said in an e-mail interview to HT Digital.

Ban does not prohibit purchase of larger buildings

“Residential property are buildings with three dwelling units or less (which means it can be mixed use). This includes semi-detached houses and condominium units. It will not prohibit the purchase of larger buildings with four or more dwelling units,” explains Levy.

Non-Canadians (under the foreign buyer ban) can purchase residential properties located outside of Census Metropolitan Areas (CMA) and Census Agglomerations (CA), but again, if in Ontario, would have to pay the tax.

However, the speculation tax applies to buildings/structures that can accommodate one to six single family residences. The tax can also apply to seasonal properties, such as cottages. Excluded are multi-residential units (more than six units), commercial and industrial land, and homes on qualifying farms, he said.

Given how high home prices are across Canada in major cities or urban areas, a 25% tax in Ontario (and similarly in some other provinces) is obviously an undesirable additional cost to foreigners that would be exempt from the ban. In addition to the speculation tax, they are still required to pay the land transfer taxes, which in Toronto are quite high. On average a foreign buyer exempt from the ban could pay close to 30% in additional costs to purchase a property in Toronto, Ontario, he said in an email interview to HT Digital.

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