Ottawa’s latest efforts to keep foreign homebuyers out of the national housing market and keep more stock for Canadians comes with a few loopholes that real estate stakeholders say could lead to international investors putting their money into rural areas.
Canada’s two-year ban on non-resident buyers, which came into effect on Jan. 1, doesn’t apply to every buyer, every kind of property or every market in the country.
For instance, the federal government confirmed in the legislation introduced late last year that the ban on non-resident buyers doesn’t include recreational properties like cottages.
Though that was clarified in December, the initial announcement of the ban in April 2022 might have been enough to spur prospective buyers to get into the market before the ban was law.
A Royal LePage survey of U.S. buyers living in border states in November 2022 shows that three-quarters of those with recreational property in Canada bought after the feds’ announced the ban on April 7 of that year. Some 77 per cent said the potential impacts of the ban influenced their decision to buy before the end of 2022.
Pauline Aunger, broker of record at Royal LePage Advantage Real Estate, said in a statement accompanying the survey that the strength of the U.S. dollar and relative affordability of vacation properties in Canada compared to those south of the border make the country’s recreational market attractive to both investors and leisure travellers.
“With its world-class skiing resorts and picturesque winter landscapes, Canada will remain a desirable location for recreational buyers from all over the world,” she said.
Chris Alexander, president of Re/Max Canada, tells Global News that Canada is “on sale” compared to the U.S. with its weaker dollar. That’s one of the “multitude of reasons” the country is attractive to foreign investment, he says, in addition to Canada’s stable banking and political system.
A ban on big city purchases pushing international investors to recreational properties “could stimulate demand” in these markets, Alexander says.
Toronto-based Century 21 realtor Pritesh Parekh told Global News in an email that investors seeking exposure to the Canadian real estate market might try to shift their residential investment strategy to recreational properties.
“If buyers do re-allocate to recreational properties, we are essentially opening up new, unnecessary challenges for Canadians who want to buy such properties to then need to compete with foreigners,” he said.
Global News reached out to Housing Minister Ahmed Hussen to ask about why these exemptions were made and received a response through the Canada Mortgage and Housing Corp. (CMHC) on his behalf.
The CMHC stated that the temporary ban was brought in to make sure that “housing is used to house Canadians, instead of speculative investments by foreign investors.”
But the agency also said that, following consultations with industry stakeholders, it carved out the exemption in light of the “important role that the purchase of recreational property by non-Canadians plays in many smaller communities.”
Rishi Sondhi, an economist with TD Bank, isn’t sure the foreign buyer ban will have much of an overall impact on Canadian markets, however.
He says hefty taxes on non-resident buyers already implemented in British Columbia and Ontario likely already “washed out” most international buyers from these markets.
The latest available data from Statistics Canada shows that 2.2 per cent of homes in Ontario and 3.1 per cent of those in B.C. were owned by non-residents as of 2020 — that accounts for more than 100,000 units in Ontario and roughly 54,000 units in B.C.
Non-resident ownership rises to 5.0 per cent of condominium units in Ontario and 6.1 per cent of condos in B.C.
Given the clear condo preference to date, Sondhi says it’s not certain that these buyers would leave that market for cottages and other recreational investments.
“One wouldn’t expect a huge amount of foreign money to come into these markets as a result of this policy because it hasn’t really been a case prior to the policy,” he says, adding it was demand from domestic buyers that drove prices higher on recreational properties during the COVID-19 pandemic.
The foreign buyer ban also only applies to cities of a certain size: major municipalities called census metropolitan areas (CMAs) as well as census agglomeration areas, which typically means a town with a core population of at least 10,000.
For realtors in Prince Edward County (PEC), a popular wine region and tourist destination in Ontario that saw a flurry of activity during the pandemic, there’s some grey area in the new rules.
Tammy Noyes-Bryant is a realtor with Century 21 in Picton, Ont., a town of just under 5,000 people. While the population might exempt the area from the foreign buyer ban, the wider PEC is incorporated as one municipality, which Noyes-Bryant says is creating some confusion within the local industry that needs government “clarification.”
“If I was a buyer agent, I would be strongly suggesting any foreign buyers have a lawyer that’s well versed in that reviewing their agreement purchases and sales,” she says.
While Noyes-Bryant says PEC lacks the pre-construction condo market that foreign buyers have traditionally gravitated towards, she argues the region does have a growing opportunity for those looking to park international money.
PEC’s tourism draws made it a hot spot for short-term rentals like Airbnbs in recent years, but she says bylaws cracking down on these types of properties have limited this business case.
She says she’s been much more active on the renting side of real estate recently as landlords find opportunity in the long-term leases in PEC amid a hot rental market in Canada.
“I think that there’s some opportunity there for foreign buyers,” she says.
Beyond just investing, areas like PEC and the nearby Quinte region can be increasingly welcoming as destinations for immigrants looking to get their start in Canada, Noyes-Bryant says.
While traditionally newcomers would have gravitated towards bigger cities for language and other settlement services, she notes that many Ukrainian and Syrian refugees have recently been welcomed to the small-town life the rural areas offer with the benefit of remote services to help them get acclimated.
Even if international investors do drive up business in recreational markets and rural regions, experts say other forces could slow activity in these areas.
While many housing markets across the country cooled and saw price drops through 2022 as the Bank of Canada raised interest rates, the recreational market continued to grow in many places.
Royal LePage said in November that the median price of a detached recreational home in Canada rose 15.1 per cent to just over $1 million through the first 10 months of 2022.
Alexander says this segment was an outlier because there was “very low inventory” in the recreational market and “still high demand” from buyers. He believes Canadians remained apprehensive of international travel amid the COVID-19 pandemic and sought to invest domestically for their vacations.
For regions like Prince Edward County, Noyes-Bryant says she’s seen inventory and days on the market rise in recent months, but prices have not retreated from their pandemic highs.
There’s still demand out there from buyers who want to be in PEC but missed the initial wave or were intimidated by the multiple-offer frenzies of recent years, she says.
Royal LePage says the larger inventory and reduced competition in the recreational market could push median prices down 3.0 per cent year-over-year in 2023.
Alexander says he expects the cottage and cabin market to remain busy in 2023, but not necessarily with the fervour of the previous pandemic years.
With fears of a recession hitting the economy in 2023, he notes that recreational properties are often the first to go when money gets tight and Canadians feel the pinch of rising mortgage costs.
Alexander also anticipates that some buyers who jumped into cottage life during the height of lockdown restrictions might rethink their plans and head back to the city as in-person work returns and downtown cores come back to life.
“I think the people that made those decisions to be in rec markets full time, some of them may decide that it’s time to move on,” he says.