The federal government's foreign buyer ban aimed at making housing more affordable for Canadians is creating uncertainty for real estate developers, forcing some to put projects on hold.
Prime Minister Justin Trudeau's Liberal government legislation that bans non-Canadians as well as corporations controlled by non-Canadians from purchasing residential property for two years went into effect on Jan. 1. The legislation, known as the Prohibition on the Purchase of Residential Property by Non-Canadians Act, was part of a broad range of policies first announced last April aimed at improving housing affordability for Canadians. But real estate experts say the broad scope of the regulations within the legislation has created unintended consequences that could impact a range of residential and commercial real estate transactions and make it more difficult to get new housing supply online.
Under the Act, residential property is not limited to homes, town homes and condominiums, but also includes any land that does not contain any habitable dwelling that is zoned for residential or mixed use and is within a census metropolitan area. That means commercial real estate transactions could be impacted by the legislation.
Purchases are also defined in a way that could prohibit the acquisitions of a lease, mortgage or any other interest in a residential property. The definition of non-Canadians under the Act includes corporations with more than 3 per cent foreign ownership.
Many commercial real estate deals have been cancelled or are on hold despite the fact that they have nothing to do with residential housing. 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.
Lee says the legislation makes the government's goal of improving housing affordability more difficult and hampers developers' ability to increase supply at a time when it is most needed. He notes that it's particularly difficult for condo and purpose-built rental projects, which require significant capital for construction.