Some foreigners will not buy property in Canada for the next two years.
The ban’s purpose is to make homes more affordable in one of the world’s most costly cities.
The average price of a property in Canada this summer was C$777,200 ($568,000; £473,700), more than 11 times the typical household income after taxes.
Some people are opposed to the restriction because they are unsure how it would affect the Canadian real estate market.
According to research, the highest housing values in Canada are in Ontario and British Columbia, with non-Canadians accounting for less than 6% of homeowners.
Non-Canadians and permanent residents can no longer own real estate in Canada as of January 1. Violators will risk a C$10,000 fine.
The Canadian government declared in December, 11 days before the ban went into effect, that there would be exceptions to the regulation, such as for international students who have been in the country for at least five years, refugees, and people with temporary work permits.
According to Ahmed Hussein, the federal minister in charge of housing, the prohibition is designed to prevent people from considering homes as objects rather than somewhere to live and raise a family.
Even if Canadian home prices declined marginally in 2022, they are still much greater than they were ten years ago.
In 2013, the average house price was C$522,951, implying that prices jumped 48% in 2014.
Meanwhile, the average Canadian household income has lagged behind rising property prices. According to the most recent data, the median after-tax household income increased by 9.8% between 2015 and 2020.
According to Statista’s research of house-price-to-income ratios, Canada’s housing market is among the world’s most unaffordable, ranking higher than New Zealand, the United States, and the United Kingdom.
The average home price in two of Canada’s largest cities, Toronto and Vancouver, has topped C$1 million, making them among the top 10 most expensive cities in the world.
In 2018, as New Zealand struggled with housing affordability, the country restricted foreigners from owning property.
When inflation is considered, however, property prices have continued to rise since the moratorium began.
Other governments have discouraged foreigners from owning property by prohibiting non-residents from certain neighborhoods or charging foreign buyers a fee.
Foreigners are prohibited from buying real estate in Canada
Canada’s Prime Minister, Justin Trudeau, suggested a two-year embargo on foreign property acquisitions in April 2022.
The move comes at a time when the country is dealing with some of the most costly housing difficulties in the world.
Prices have climbed by more than 20%, with the average Canadian home costing more than nine times the annual salary of a family.
However, industry experts caution that barring foreign buyers will unlikely improve the situation.
There needs to be more information available about what overseas buyers buy in Canada, although research shows that they make up a small percentage of the market.
Throughout his election campaign last year, Mr. Trudeau promised to work to make housing more accessible.
Aside from the temporary ban on imports, his administration’s budget proposal for Thursday contains billions of dollars to spur new building. Furthermore, it suggests new initiatives, such as a way for first-time house buyers to save money without paying taxes.
Mr. Trudeau has also proposed reducing bidding processes that benefit investors, who have bought nearly one of every five homes in Canada since 2014.
Permanent foreign residents, international students or workers, or anyone purchasing a principal residence would be exempt from the proposed foreign buyer ban.
The plan builds on what other Canadian provinces have done in the past, such as imposing additional taxes on out-of-town and international buyers.
For example, Premier Doug Ford of Ontario recently announced that he aims to raise the tax on foreign buyers from 15% to 20% and apply it to the entire province rather than just Toronto.
According to Steve Pomeroy, president of housing policy firm Focus Consulting, taxing international purchases brings in money that can be used to address affordability difficulties.
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In 2018, New Zealand adopted a similar measure, barring foreign acquisitions.
According to Paul Kershaw, a University of British Columbia professor and the founder of Generation Squeeze, Mr. Trudeau’s plan does nothing to slow price increases or make it easier for people to pay for goods.
Mr. Pomeroy believes that price inflation will fall as the central bank raises interest rates in the coming months. Many Canadian purchasers prefer five-year mortgages to longer-term mortgages common in the United States and the United Kingdom. As a result, the Canadian housing market is particularly vulnerable to such shifts.
However, he warned that rising interest rates would make it more difficult for first-time buyers to enter the market.