Countries across the globe have opened their doors to foreign buyers in an attempt to heat their property markets, and it has worked. 2021 was a record year for property prices across Europe and the US. One country against this trend is Canada. In order to calm an overheating real estate market, they are banning foreign buyers for two years.
The move comes as Canada struggles to tamp down a market which has been buoyed by speculation. Prices rose by 20% last year whilst rents have also been climbing. A period when inflation is also soaring, many people find themselves struggling to afford rent, let alone the cost of buying a house.
In announcing the Federal Budget this year, Finance Minister Chrystia Freeland took several measures to cool things down – with foreign buyers and speculators in the firing line. Foreign home-buying will be banned for two years in addition to higher taxes for people who sell their homes within a year. However, there are exceptions for permanent Canadian residents and international students.
Along with these measures, billions of dollars have also been spent on new housing measures and helping struggling Canadians get on the housing ladder. These include changes to the rules for tax credits for first-time home buyers and a new savings account.
The new measures represent the attempt of the government to address a housing market which was perceived as being out of control. For example, in Vancouver, where house prices have been averaging more than CAD$1.36 million, real estate billboards have appeared written in both English and Chinese.
Foreign buyers, especially from China, have flocked to the market, both in Vancouver and the second priciest market, Toronto. Prices have surged. By February, the average house price in Canada reached more than CAD 800,000, putting the cost of owning a home, comparative to average incomes, at a 31 year high, according to data from the Royal Bank of Canada. It is more than nine times the average income of most Canadian people.
According to the government, the new rules are intended to make the market fairer for Canadians. In a Tweet, Freelander promised to “invest in building more homes and bringing down the barriers that keep them from being built.”
As well as excluding foreign buyers and discouraging speculation, the government has promised to invest in rental housing to lower rents and make it easier for young people to save to buy a home.
They are not the first country to try a program like this. In 2018, New Zealand introduced similar measures to discourage overseas buyers from their own overheated markets.
Whether it will work remains to be seen, but it reflects an ongoing challenge for many countries. Foreign investment has brought millions of euros, dollars and pounds into economies. However, the price is often felt by residents through inflated housing markets which go beyond the capacity of most buyers.
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