The Canadian government banned foreign nationals from buying residential properties in Canada. This law came into effect on 1st January of this year. This is one news that most of us have come across on social media platforms or news sites. But what does this ban on foreign purchases mean for the real estate businesses in Canada? Will it affect the sale of properties? Will it affect prices and adversely affect the real estate market?
Many believe that foreigners are buying more homes in Canada and amping up the housing crisis. Is this crisis real? What are the real estate experts at Assetsoft saying? Is this ban something to worry about or it is a welcome move for both residential Canadians and real estate professionals? Some believe that this move may backfire and worsen things for the Canadian market. But some businesses and residents are welcoming this move.
Read this analytical article below to learn more about this issue and how it may affect you. Learn about its pros and cons, and what your next step should be to get ahead of this rising trend.
The Housing Crisis in Canada - Is it Real?
The housing crisis in Canada is very much real for all its residents. Data published by the Canadian Real Estate Association says that the average home price in Canada was above $800,000 in 2022, compared to $500,000 in 2015. The average prices have risen drastically, whereas people’s incomes may not have risen so much.
After the effects of the pandemic, the grilling effects of rising inflation, and the predicted recession in 2023, buying a house is becoming harder. Data says people’s average income has increased by only 2% over the same period. Hence, Canadians are now looking for homes that are 10 times their actual income. Basic homes are becoming unaffordable for the average Canadian citizen.
Some reports and research have also stated that if the average home prices in Canada drop by half, it can help solve the housing crisis. But that is an unrealistic expectation in this inflated market. With the incoming recession in 2023, people are losing jobs every day, which will instead make the housing crisis even worse.
Are foreign investors and homebuyers adversely affecting the Canadian housing market?
Several experts believe that foreign investors are to blame for the housing affordability dilemma and Canada's skyrocketing home prices. But experts also ask, what percentage of Canadian homebuyers are actually foreigners? There is a dearth of reliable information about overseas investors and home purchases in Canada. According to the Canadian Housing Statistics Survey, only two to six percent of Canadian residential homes were owned by non-citizens in 2020.
Compared to the industry's residential unit sales, the number of international investors is minuscule. Many believe that Canadian real estate businesses have actually profited from the lucrative foreign homebuyer market. That is why many experts believe that foreigners' contributions to the housing shortage in Canada are meager and inadequate.
What are the effects of this ban on the real estate biz?
The new Canadian law to ban foreign purchases and overseas investors in the residential market may actually adversely affect some real estate businesses. Businesses that focused on catering to the foreign market may see a downward curve in their business. The repercussions are manyfold, but real estate businesses need to rethink their business strategy. The next biggest focus is on affordable housing. Even the Canadian government has announced tax-free monthly payments to low-income households to help solve the housing crisis. If you want to stay afloat during this major change, you need to tap into this rising market.
What are the pros and cons of this ban on the real estate market?
What are the pros and cons of this 2-year ban on the Canadian real estate industry? Learn more here.
Pros
This ban may stop excessive foreign investments in Canadian residential properties and help national residents buy more homes.
This may help bring down the home prices a little if the lucrative foreign investments stop coming in. This can help properties become more affordable and available for Canadians.
This move may also help in bringing down the average housing mortgage rates in the Canadian market. The rates have been rising constantly for the past couple of years, this may slow down after the ban.
Cons
Foreign purchases brought in a lot of lucrative money and helped many local Canadian real estate businesses grow. This ban may become a roadblock for some real estate businesses which catered to overseas clients.
This ban may not have any positive impact on home prices. Homes may remain as costly as before and low-income Canadian households may still not be able to afford homes. In the end, the real estate market may lose foreign customers, and at the same time gain no new residential customers. This can be a major setback.
Outlook in Real Estate for the Next Few Years
If Canada’s ban on foreigners buying homes in Canada is the right decision or not, is still a matter of debate among many. But as a real estate business owner or manager, you need to know how to steer this trend and keep your business afloat. This sudden ban can come as a jolt to your business if you do not plan your strategy and leadership to get on top of this trend. No matter who your clientele was, foreign investors or Canadian nationals, this sudden change in the market is bound to affect the whole real estate market. But this ban was only imposed on the 1st of January, so its ripple effects are yet to be felt. What the future holds, and how this 2-year ban unfolds is still a big question mark in the industry.
We suggest you talk to the Assetsoft strategy and leadership team and advisory experts to learn if this new development affects you. We can also help you figure out which recent market trends and updates are relevant to you. Get in touch with our team for more. You can also book a free consultation call on our website to get started.