Whatever goes up, will come down…except for house prices in Canada.
To make housing more affordable for Canadians and cool the hot property market, the Federal Government has just imposed a two-year ban on foreign capital coming into Canada to buy residential real estate.
Property prices in Toronto, Vancouver, Montreal, Ottawa and other top urban locations are being driven by investors and speculators. The Government is also taking urgent action against property flippers and may soon announce a new special tax on property investment profits.
Prime Minister Justin Trudeau announced in a policy statement that, “making life more affordable for Canadians starts with addressing housing affordability. All Canadians deserve a safe place to live, raise their families, and build their future. Budget 2022 will put home ownership in reach for more Canadians.”
How investors could beat the new moves
Are the new measures being proposed by the Government too little and too late to curb the skyrocketing house prices?
Similar rules to tame prices have been tried before, but smart investors have managed to find a way around them. Here are some ways investors and foreign buyers may attempt to bend the rules:
- Foreign buyers can simply buy properties through relatives or proxy buyers.
- Investors and immigrant entrepreneurs could convert their property investments into company assets, and move their jumbo profits from individual to corporate.
- Instead of buying and flipping, investors could buy and hold for a longer period and sell after.
- Buyers may also invest in long-term pre-construction and projects that rules would change again before occupancy.
Bidding wars and Government plans
To improve the housing affordability for Canadians, additional measures proposed in Budget 2022 include:
- End to bidding wars
Protecting buyers and renters by working with provinces and territories to develop and implement a Home Buyers’ Bill of Rights and bring forward a national plan to end blind bidding.
- $4 billion investment
Canada will double housing construction over the next decade, by investing $4 billion for the launch of a new Housing Accelerator Fund that will help create 100,000 new housing units over the next five years.
- Fight homelessness
The Government will continue to fight homelessness and support housing affordability, particularly for the most vulnerable by investing $475 million in 2022-23 to provide a one-time $500 payment to those facing housing affordability challenges.
- Indigenous Peoples program
Addressing the housing needs of Indigenous Peoples by investing $4.3 billion over seven years to improve and expand Indigenous housing in Canada. Additional funds would also be allocated to target the housing needs of First Nations children.
The solution: more action, less talk
The growing immigrant population and the forces of supply and demand would remain the key drivers in the Canadian housing market. The estimated structural housing shortage in Canada is nearly 2 million units.
Scotia Bank chief economist Jean-François Perrault noted that, “Canada has the lowest number of housing units per 1,000 residents of any G7 country. The number of housing units per 1,000 Canadians has been falling since 2016 owing to the sharp rise in population growth.
“The sustainable solution is not rooted in the interest rate or macroprudential space but rather in a determined effort to remove obstacles that limit housing supply.
“History suggests that we have not been very good as a country in achieving this. Let’s hope current initiatives mark a solid break from past performance.”