Real Estate Talk:
Foreign home purchasers
The prohibition on the purchase of residential property by non-Canadians and the exceptions
By Joseph Marovitch
September 28, 2023
During the pandemic, interest rates were exceedingly low. Demand was high, and inventory of available homes was scarce. Demand consisted of buyers searching for a place to live but also real estate opportunists looking to make a profit.
Individual investors were borrowing from their credit cards, friends, or family for the down payment to take advantage of the low interest rates. There were corporations buying property to hold money in and foreign investors buying property to hold cash and eventually cash out when prices rose.
Since there were so many buyers and so little property, meaning for every one property, ten to twenty buyers were competing in multiple offer scenarios, this caused prices to skyrocket. Homes sold in days and always above asking in these bidding wars.
On January 1, 2023, the government implemented a ban on foreign investment in the purchase of residential property in Canada with some exceptions.
The city has what is called a roll every three years. The roll is an evaluation of homes in each municipality to determine what the city evaluation is for each property to know what each homeowner must pay in taxes. The evaluation is based on the average sales over the three years and the cost of infrastructure maintenance for roads, schools and so on. Note that current municipal evaluations, based on pandemic prices, are much higher than their current market value and that the ban on foreign investment is not required in the current market and economy.
During the pandemic, the Federal Government was concerned there may not be enough homes for the Canadian population due to high prices and foreign investment. Therefore, on January 1, 2023, the government implemented a ban on foreign investment in the purchase of residential property in Canada. However, there are exceptions to the ban on foreign investment. One of those exceptions is temporary residents with work permits and the following criteria:
- They have worked full-time in Canada for a minimum of three years preceding the purchase.
- They filed income tax for each of those years.
- They have not purchased more than one property.
There are other exceptions, but this is the issue I dealt with this week.
Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, click here.
Next article: The selling process
State of the market
Canada inflation today: 4 %
Bank of Canada rate today: 5%
There is a minuscule chance that interest rates will decrease slightly in the coming months. The Bank of Canada is aiming for a 2% inflation rate by increasing interest rates to slow the economy. However, with all their effort, the inflation rate rose to 4%, which means interest rates will rise further before we see a decrease.
‘… while the Fed is stating a possible rate hike in the new year, experience shows that the Fed tends to jump the gun and spring the rate much sooner.’
It cannot be stated any stronger that if a buyer intends to purchase a property with financing, acquire a pre-approval as soon as possible because while the Fed is stating a possible rate hike in the new year, experience shows that the Fed tends to jump the gun and spring the rate much sooner.
Once again, if purchasing with a mortgage, acquire a pre-approval locked-in interest rate of up to three months, put down as much as possible, and weigh the pros and cons carefully before choosing a variable or fixed mortgage and term.
Have a great week.
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Joseph Marovitch has worked in the service industry for over 30 years. His first career was working with families from Westmount and surrounding areas, hosting children between the ages of 6 to 16 as the owner and director of Camp Maromac, a sports and arts sleep away summer camp established in 1968. Using the same strengths caring for the families, such as reliability, integrity, honesty and a deep sense of protecting the interests of those he is responsible for, Joseph applies this to his present real estate broker career. Should you have questions please feel free to contact Joseph Marovitch at 514 825-8771, or email@example.com