How is the foreign buyer ban on real estate going to affect Banff and Canmore? (March 2024 update)

By Robin Tuck
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Canada prohibits foreign investors in real estate

In 2023, the Canadian government decided to try and cool down the Canadian housing market by introducing a two year ban on foreign real estate investment in Canada. They are unfortunately now talking about extending this for an extra 2 years, until January 2027.

Why? Because it is becoming increasingly difficult for Canadians to enter the housing market, and the government is implementing this as a way to try and ease the pressure on housing prices.

Unfortunately, this means a lot of question marks for American and international investors, who have always looked to Canada for great investment opportunities (especially in Banff and Canmore).

If you’re reading this, you’re probably wondering, “Can I still buy Canadian Real Estate?” and, How is this all going to work?

Now that the law is in effect, the rules have been clarified. So let’s dive into it.

By the way, if you want to read the rules straight from the horse’s mouth, please click this link to read the Prohibition on the Purchase of Residential Property by Non-Canadians Act in full.

What are the specific rules around the prohibition of foreign investment in real estate in Canada?

As of January 1st, 2023, the federal government is bringing the “the Prohibition on the Purchase of Residential Property by Non-Canadians Act” into force. It’s still likely to change a little before it comes into full effect, because there are still a few grey areas, but this is what we know so far:

A 2 year ban from January 1, 2023 (soon to be 4 years)

From January 1, 2023, this all comes into effect and will automatically expire in 2 years. The Federal government has also just announced that they intend to extend the ban on foreign investment in Canadian Real Estate for a further 2 years; until January 2027. As yet, there seems to be no data cited or justification for the extension, but regardless, the law is likely to change soon and extend for another 2 years.

The foreign ban only applies to residential real estate

You might have heard that all foreign investment is banned, but the ban really only applies to residential real estate. The reason for this is that Canada is really doing this to make it easier for Canadian citizens to enter the housing market and buy a home. Commercial property, multifamily property, development land and recreational property is not something a first time home buyer is likely to be purchasing as a residence, and is unlikely to have as much of an impact on housing prices as pure residential property. Therefore these are not included in the prohibition.

To be super clear about what is included in the definition of residential property, the government defines it as:

  1. a detached house or similar building, containing not more than three dwelling units” and the land it comes with.
  2. “a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises”, i.e. condos, duplexes and townhouses meant for residential purposes are included.

The ban is limited to more populated areas in Canada

It now seems likely that the Canadian government intends to ban foreigners from purchasing in census metropolitan and census agglomeration areas across Canada. This actually leaves a lot of room for property to be excluded from the ban.

Census Metropolitan areas and census agglomerations are not vague terms at all. They are specifically identified in an official list and have a specific meaning when it comes to population size. A census agglomeration is a town with more than 10,000 people, and a census metropolitan area is a city with over 100,000 people, of which at least 50,000 live in the core. You can read the official government definition here.

For investors looking at the Bow Valley as a potential place to invest, it would seem that although Canmore is a census Agglomeration area, Banff, Harvie Heights, Exshaw and Dead Man’s Flats are not big enough to be included.

If this term is to be believed, then there are still plenty of awesome mountain towns that foreigners can invest in. You can also add Golden in BC and Revelstoke, BC to the list.

The irony, of course, is that house prices and availability of housing in these small ski towns is still a massive issue, and that these towns perhaps need house prices and demand to come down much more than some major cities do. It will be interesting to see if there are any special rules for towns that are small but determined to be recreational towns (like Whistler, for example).

Can foreigners still invest on a work visa?

From the wording of the act, it would seem that virtually anyone that is a citizen, permanent resident or a “temporary resident” is going to still be allowed to buy real estate in Canada.

A temporary resident is anyone that’s here on a work or study visa. It’s unlikely that someone visiting on a tourist visa would count (as this is exactly what they’re trying to prevent), but even the phrase “temporary resident” is a fairly large catch all term that could include a lot of different kinds of non-citizens.

If I’m married to a Canadian, can I still invest in Canadian real estate?

Yes, non Canadian Citizens or permanent residents can still invest if their common law partner or spouse is a Canadian Citizen or permanent resident

How will the foreign investment ban affect Banff investment properties?

Banff is a unique property market, that attracts plenty of foreign investment. There are restrictions on who can live in the town (the need to reside clause), but there is no restriction on who can buy. Banff is not included because it is too small to be a census agglomeration, so it is definitely worth considering as an investment. With a lack of alternatives, extremely low vacancy and high rents, foreign investors may still invest in Banff in 2024.

This could very possibly have the opposite effect than was intended by the government, and push house prices and rents higher still, but only time will tell.

How will the foreign investment ban affect Canmore investment?

While the majority of the residential homes in Canmore are likely to be off limits to foreign investors, there are still one or two exceptions; i.e. development land, recreational property etc.

With the way that some buildings are zoned and the uses are restricted, some properties are classed as visitor accommodation, and only allow residents to stay for up to 30 days. That means these buildings simply aren’t allowed to rent to long term tenants and are not really affecting the housing supply for renters. As a result, this kind of property is closer to a commercial property than a residential.

In fact many banks will finance short term rental properties with commercial loans, and the town of Canmore certainly views some of these properties as commercial. So this begs the question, “will international investors still be able to purchase short term rental properties in Canmore in 2024?”

After a fair amount of digging, it seems that short term rentals still count as residential property in Canada, so this really isn’t too much of an option for investors right now.

If you are a foreign investor, there is definitely still hope, but it’s very likely that there will be a very narrow range of properties that you will be able to choose from. If you have any questions about which kinds of property this would be, I would be happy to talk with you about it in more detail, or you could chat with a local lawyer/mortgage broker for their views.

Of course, if you’re Canadian or a permanent resident, there are no restrictions, and you can still buy any kind of real estate in 2023!

What can non-Canadian’s buy in Canmore right now?

You can still buy land in Canada if you are a non-Canadian

In March 2023, there was an amendment to the prohibition on foreign investment rule, which loosened up some of the restrictions and created a few exemptions (see 4.2e of the law).

If, for example, you are an american citizen with no ties/visas to Canada, but you still wish to invest in Canmore, the best option (if budget allows) is to buy land to develop.

I have written a short piece on an amazing opportunity for US citizens/foreign nationals to buy land in Canmore that is zoned for short term rentals here. I have already sold land to non Canadians and can say with certainty that it is legal.

It is legal to buy the land, and once you actually own the land, there are no restrictions on building a house to live in/rent out. If you’re keen to learn more about these opportunities, please don’t hesitate to reach out.

If you are interested in reading about the specific exemptions in the amended law, you can read them here.

Below is a quick screenshot of the specific part of the law that exempts land bought for development from the foreign prohibition. If this interests you, I would recommend saving this page and the link because the vast majority of banks/lawyers I have spoken to don’t appear to have noticed the amendment to the law and still believe there is a blanket ban.

Options for financing if you are foreign and want to buy land

If you do buy land as a non Canadian, you still will need to build your property eventually. In some developments, you may have a certain timeframe within which you must actually start your construction. If you have cash available to fund the project, then this should pose no issue, but if you need financing, it’s worth bearing in mind that financing for non-Canadians can be quite tough. You may have to resort to private financing which will be quite a bit steeper than normal financing.

I should also mention that it’s very tricky to get financing on land for non Canadians, unless you go through a private lender and are willing to pay very high rates.

If you want to develop/own in Canada, it might be worth looking into applying for permanent residency

Yes, humour me for a moment. Perhaps the fastest way to buy/own property in Canada as a non-Canadian (if you are determined), is to apply for a visa or permanent residency. If you’re looking to develop land, getting Canadian permanent residency is going to save you a ton of financing money in the long run.

Coming from me, a non Canadian who is currently a permanent resident (and will eventually become Canadian), I have been through the system myself and know exactly how much time, effort and money it takes. And to be honest, if you have a skilled background and are determined to buy/move to Canada, this may be the fastest and simplest way forwards. It’s even easier if you’re married and your partner also has a skilled job.

From a time perspective, the ban is for 3 years, but if you have the right credentials, you could apply for the Canadian Express Entry permanent residency pathway and be a permanent resident within 6 months to a year (if you stay on top of it).

Yes, the process is a little tedious and takes some time and money, but if you are skilled and have the time and inclination, it could save you hundreds of thousands in the long run.

Why is getting permanent residency a good idea if you want to develop a home in Canada as a non Canadian?

Some recent clients of mine are highly skilled doctors/surgeons in the US. They have already bought the land to develop their dream home, but are finding financing options to be very expensive for non-Canadians.

My advice? Apply for permanent residency (PR) and then go through an institutional Canadian lender once they have residency. This will ultimately save them a huge amount of money (possibly hundreds of thousands in interest) on their development.

As Americans, they can have both US citizenship and Canadian permanent residency at the same time. PR lasts for 5 years. Although hopefully they stick around for longer, this would be more than enough time to finance and build their dream home and avoid the punitive interest rates charged by private lenders.

I have another client whose dream is to move to Canmore and buy a house, but he’s Canadian. Again, my advice? Apply for permanent residency! It will be significantly quicker and cheaper than waiting for the end of the foreign buyer ban, if you have the energy for it!

If you need help or want to discuss the permanent residency pathway, or would like me to connect you with an immigration consultant, please don’t hesitate to contact me.

Now for some more (possibly boring) musings on the foreign investment ban

Why has Canada banned foreign investment in real estate?

Why did Canadian House prices go up so much, and what does foreign investment have to do with it?

There are plenty of reasons that cause house prices to rise, and much of this latest rise is to do with the pent up demand from Covid, coupled with record low interest rates on mortgages.

When there is a huge rise in demand for housing, the market must respond by increasing supply. Unfortunately, building new houses takes a long time, so we’re left with a situation where demand far outweighs supply.

This has been referenced a number of times by the Federal government, and it is generally understood that we are way below the number of houses that we need for our population. It’s estimated that Canada will need an additional 3.5 million more homes built by 2030 than are currently projected to be built.

The laws of economics dictate that with surplus demand, prices increase. And this is what we saw over the last 18 months, with the massive price increases seen across the country.

How will a foreign real estate investment ban affect house prices?

A small change (my prediction)

In my view, a ban on foreign investment in Canadian real estate will have a relatively small effect on house prices as there are far more dominant forces at play that will probably dwarf this effect. For this reason, I think it will also be tricky to measure the impact of these new laws.

Fast forward a year to 2024, and prices are still creeping up. In my mind, the foreign buyer ban has had little to no effect, and extending it is not really doing anything significant.

With that being said, in certain provinces, there is certainly more foreign investment than others. In BC, around 9% of homes built after 2016 have at least one non resident owner on the title. This jumps to 13.4% in 2020 when we look specifically at new condos built after 2016. This has fallen from 15.4%, which could arguably be due to the foreign buyer taxes that have been brought in.

Larger effects in larger cities

I also believe that this is likely to have the biggest effect on property prices in major cities, as this is generally where international investment is focused. Small town Canada rarely sees much interest from abroad, and this is most likely why the act is focusing on major cities.

Obviously Banff and Canmore are small towns that see a lot of foreign investment, so the effect could be greater here, but in all honesty, there are just as many wealthy Canadian investors as international investors that are able to enter the market in any price range and push prices up.

I’m not convinced that this will have a huge effect on prices, and I believe that this is more of a politically motivated move by the government to be seen to be acting on the housing crisis. I am not convinced that it will move the needle significantly, but it’s a solution that is increasingly being proposed to curb house price rises.

If you ask me, interest rate changes, inflation and population growth (including immigration of foreign investors to Canada) will have a far larger effect on demand than a small group of international investors (as of March 2024, my prediction from 2023 is still holding true).

Why is Canada attractive to foreign real estate investors?

Canada is a safe haven for foreign money

Canada is known as a safe economy when compared to many other countries around the world. In the index of Economic Freedom, which measures economic freedom of 184 countries based on trade freedom, business freedom, investment freedom, and property rights, Canada ranks number 15 in the world. In effect, this means Canada is a very safe place to park your cash, where you have bulletproof property rights and you have very little risk of the government expropriating your land or taking your money away suddenly.

When you look at some other countries that are investing heavily in Canada, it is obvious why Canada is attractive. Take China, for example, a country with notoriously weak property rights that is ranked 158/184 on the economic freedom index.

In China, the government owns all land, and citizens lease land from the government. Essentially, all ownership is leasehold. This means nobody has true property ownership, and land is always at risk of being taken away. It’s therefore no surprise that coming to Canada where you can purchase freehold property is attractive. Throw in a good chance of capital appreciation, and low taxes, and it’s an absolute no brainer.

Similarly, in the UK there has been a huge amount of Russian and Ukranian investment in London for the exact same reason. For decades, the UK has been considered a safe place for money, so foreign investment has poured in and pushed up property prices.

Ultimately, during times of economic and global instability, there is a huge transfer of wealth from less safe economically safe countries to safe countries, and there is no doubt that this has effected Canadian real estate prices over the years to some extent.

Why did Vancouver bring in foreign investor taxes?

In Vancouver, it was noticed that many properties were left completely vacant and were owned by foreign investors. The most likely reason for this is that people are taking their money out of their home country, where the money is at risk of disappearing, and are keeping it safe in Canadian real estate. These properties weren’t really purchased as rental properties, or even as vacation homes, but simply as a safe place to store large amounts of cash.

So this led to an enormous amount of vacant homes, and therefore a reduced pool of homes available for residents. This reduced the supply, forcing prices to increase.

With many locals being priced out of the market, the government decided to tax foreigners when purchasing property, and then tax them again if their properties are left empty.

British Columbia now has a speculation and vacancy tax, which charges foreign owners 2% tax on their vacant home’s property value (compared to 0.5% to Canadian Citizens), and a 20% foreign investor property transfer tax. They have also recently banned Airbnb’s in the entire province!

These taxes have been around for a few years now, however they didn’t really seem to have any effect on property prices at all during the last boom in 2021. Ultimately, the federal government has decided that these measures aren’t enough and that it’s now time to ban foreign investment

Will it work? I guess we’ll find out soon enough!

If you have questions or comments, feel free to email me at info@robintuck.com or leave a comment below. All views and insights are appreciated, even if you don’t agree!

Disclaimer

Lastly, this post is based on my interpretation of the law as best I can. If you have more detailed questions about your specific situation, please consult your lawyer. Also bear in mind that these laws are still new and subject to change without notice.

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