April 18, 2024

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Canada foreign homebuyer ban causing upheaval in real estate industry

Legislation is blocking real estate developments, CIBC says

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The federal government’s foreign homebuyer ban was designed to improve housing affordability, but a major flaw in the legislation is causing more harm than good, according to the Canadian Imperial Bank of Commerce.

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The ban, which blocks non-Canadians from buying residential property — either directly or indirectly — for two years, came into effect on Jan. 1. The Prohibition on the Purchase of Residential Property by Non-Canadians Act, as it is officially known, was meant to take some pressure off home prices amid an affordability crisis only made worse by the rising cost of living brought on by inflation and elevated interest rates. But, there’s a problem: The language used in the Act is causing issues, and it’s stopping real estate development — necessary to boost housing supply and address affordability — in its tracks, Benjamin Tal of CIBC economics said in a note.

“The language of the Act appears straightforward until you show it to a lawyer,” he said.

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For one, the words “residential property” legally capture far more property types than lawmakers likely intended. While homes such as detached, semi-detached, row houses and condominiums fall under that category, so does land. Vacant or developed land that doesn’t house a habitable structure, is zoned for residential or mixed use, and located within a metropolitan area, is included under that definition, CIBC said. As a result, any commercial property in such a zone would be banned from being owned by a non-Canadian.

“The entire area of downtown Toronto falls under that category,” Tal said.

Further, the definition of “non-Canadian” is also a source of problems. Corporations are considered non-Canadian under the Act if they have foreign ownership of at least three per cent. But though the Act excludes companies listed on a Canadian stock exchange from being affected, it fails to exclude real estate investment trusts (REITs) — important builders of residential property such as apartments. That means most publicly traded Canadian REITS are therefore considered “foreign entities,” the note said. As a result, many REITs risk being blocked from building much-needed new housing.

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Even the word “purchase” is a cause for issues. Because the term includes direct and indirect purchases, the Act effectively bans foreigners from acquiring leases or mortgages on residential dwellings. Buying shares is also included, meaning non-Canadians could be blocked from investing in units of a REIT that owns residential assets.

The end result has brought upheaval to the real estate industry and caused even commercial deals, with no ties to residential homes, to be cancelled or held back.

“The damage is real,” Tal said. “Developers that are partly foreign owned or rely on foreign equity cannot proceed with purpose built developments that, in our view, are the most effective tool to tackle Canada’s housing affordability crisis.”

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The implications could even stretch beyond the real estate industry, he warned. For example, companies with a minority non-Canadian investor could be blocked from buying shares in a company that happens to reside on land zoned for mixed or residential use.

Tal urged the government to take action to rectify all the problems the wording in the legislation has unintentionally created.

“Policymakers should immediately take another look and amend the Act in a way that is consistent with what it was intended to achieve — focusing only on single units being purchased by foreigners while exempting development of new supply from the impact of the new legislation,” he said.


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The Canadian economy recorded no growth in the final three months of 2022, massively underperforming expectations, though economic activity likely rebounded with a 0.3 per cent increase in January, Statistics Canada data showed on Feb. 28.

The 0.0 per cent growth reading in fourth-quarter gross domestic product capped five consecutive quarterly increases and missed analysts’ average forecast of a 1.5 per cent rise. It was also well below the Bank of Canada’s forecast for 1.3 per cent annualized GDP growth in the quarter.

That might mean Canada is headed for recession after all, writes Kevin Carmichael. The data will also be welcome news for Bank of Canada governor Tiff Macklem. Read Carmichael’s analysis here.

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  • Gudie Hutchings, minister of rural economic development; and Randy Boissonnault, minister of tourism, will make an announcement about the National Trade Corridors Fund
  • Members of the public are planning to participate in a demonstration of solidarity in Ottawa with the organizations challenging Bay du Nord’s approval. The demonstrators are calling on public officials to stop catering to big oil by approving new oil projects, and start supporting green jobs
  • Environment and Climate Change Minister Steven Guilbeault will make a funding announcement for nature-based solutions and freshwater protection projects in Ontario
  • Filomena Tassi, minister responsible for FedDev Ontario, will announce support for Ontario manufacturers
  • Natural Resources Minister Jonathan Wilkinson; and Viviane Lapointe, Liberal MP for Sudbury, will make an announcement to support electric vehicle infrastructure in Canada
  • Enbridge holds its annual investor conference
  • Calgary Real Estate Board releases February home sales figures
  • Today’s data: Canadian S&P Global Manufacturing PMI, auto sales; U.S. S&P Global Manufacturing PMI, ISM manufacturing PMI, construction spending, auto sales
  • Earnings: Royal Bank of Canada, National Bank of Canada, Salesforce Inc., Lowe’s Companies Inc., Snowflake Inc., Tourmaline Oil Corp., Athabasca Oil Corp.

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Today’s Posthaste was written by Victoria Wells (@vwells80), with additional reporting from Financial Post staff, The Canadian Press, Thomson Reuters and Bloomberg.

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