FOREIGN HOME BUYER BAN
If there was ever a time to make an argument for using an insightful and experienced realtor, it is now. The current state of the real estate market is not for the faint of heart. Within the last several years, Montreal has experienced one of the fastest historical rises in prices and surges in demand! This began an incomparable seller’s market and forced many home buyers to compete aggressively by submitting offers well above asking price, quickly waiving conditions, and often forgoing recommended inspections.
The massive increase in demand and the shortage of supply is argued to have hurt buyers by making most homes unaffordable for the average Canadian. Because the influence of foreign home buyers is one of the forces driving up demand for homes in Canada, the federal government eventually reacted by introducing the Prohibition on the Purchase of Residential Property by Non-Canadians Act, commonly known as the “foreign home buyer ban.”
The Act, passed in Parliament in June of 2022, came into force on January 1, 2023, and states that for a period of two years from that date, non-Canadians are banned from purchasing homes in Canada that are defined as “residential property.”
The foreign home buyer ban is an attempt to level the playing field for Canadians. The federal government wants to help Canadian buyers by making sure they have access to more properties at reasonable prices. The ban’s purpose is to temporarily eliminate competition from wealthy foreign investors who can easily outbid the average Canadian home buyer.
According to an article published by the CMHC, the regulations include an exception for any residential property outside a major metropolitan area. There are several other exemptions, and if you’re curious to learn more about them, we would recommend you seek the advice and guidance of a real estate professional. Here is a link to the CMHC article as well:
If the ban is effective, we should expect to see a decrease in housing demand from foreign buyers in metropolitan areas, as most of them will no longer be allowed to purchase property in Canada.
Although the ban will certainly have an effect on the real estate market generally and might be helpful for local buyers in populated cities, it could negatively impact sellers and buyers elsewhere.
The impacts felt by the reduction in demand on the residential side will likely create a high demand in other markets for vacation properties and commercial buildings. If prices of secondary homes continue to rise steeply, that “getaway” cottage might soon become unaffordable for the average Canadian family.
The moratorium on foreign home buyers was already deemed an aggressive move by the government, but will this heavy-handed strategy affect our local market, or simply impact out-of-control markets like Vancouver or Toronto?
What is somewhat vexing is that the government implemented the ban in tandem with the highest interest-rate increases in decades, which have already burdened some homeowners with a heavier mortgage expense alongside skyrocketing inflation. Will this double punch create the intended economic effect, or will it be the knockout round for many owners who just purchased a home during the peak of the market?
There have been reports of foreign buyers attempting to circumvent the new law. However, there is a hefty $10,000 fine for anyone who tries to purchase property illegally. This could apply to not only the buyer, but also to any other party involved in facilitating the transaction (real estate brokers, lenders, notaries, etc.). In addition to the fine, the buyer would be forced to re-sell the property at a price equal to or less than acquisition in order to prevent them from making a profit.
From our direct experience so far, navigating this new law has been extremely challenging. Not only was the legislation passed quickly by the federal government, but there was little-to-no communication provided to the professionals most involved in these transactions, including real estate brokers, notaries, banks, and accounting firms. It was as though anyone we reached out to with questions didn’t know the answers. Everyone was in the dark!
There was hardly any news coverage leading up to the date the law took effect, and there was a complete lack of clarity as to how the law would be enforced. This was especially true for any offer that had been accepted before the end of 2022 for a sale that was only scheduled to close in 2023. It is now understood that any offer accepted prior to January 1, 2023, has to be honoured and is therefore not subject to the ban. Unfortunately, this issue had not been entirely resolved in the Province of Quebec until the end of January.
The Chambre des notaires du Québec was instructed that its member notaries could not proceed with any transaction involving a foreign buyer for several weeks while certain aspects of the Act were still being processed by the courts, causing thousands of transactions to be delayed. We had a client we were representing as a seller who was a victim of this delay, and while awaiting a court judgment, we had no way of knowing if or when it would ever be resolved. At one point we had to seriously consider putting her home back on the market. You can only imagine what the collective economic impact this must have had on all those involved. What a nightmare!
The Lesson to be Learned
What have we learned from all this? You can’t be too careful! We have now added a whole slew of additional checks and balances in our sales contracts to help better protect both buyers and sellers under this new law.
We have created a few new protective clauses that we ensure are added to any accepted Promise to Purchase, in order to minimize the risks that anything could go sideways for one of our clients.
At TEAM BROADY, we have guided hundreds of clients through decades of the ebb and flow of the residential real estate market. As the industry has evolved, we have learned to evolve with it. If you or anyone you know have any questions about the foreign home buyer ban, don’t hesitate to contact us today. We can be reached at 514-613-2988 or by email at firstname.lastname@example.org.