Canada has imposed a two-year ban on most foreign property purchases in an attempt to cool a market that has left homebuyers despairing as to whether they will ever get a foot on the housing ladder.
The ban and other measures taken last week by Prime Minister Justin Trudeau’s government highlighted the huge price increases across Canada’s property market, where prices have increased by more than 50 per cent over the past two years.
The government announced the ban on foreign home buying and higher taxes for people who sell their home within a year, although both measures hold exceptions, including for permanent residents and foreign students.
Home prices have surged more than 50 per cent over the past two years and the housing market had a record monthly increase in February as buyers acted before rate increases by the Bank of Canada, taking the benchmark price of a home to the equivalent of US$693,000, according to Bloomberg.
Would-be homeowners in Canada have long been exasperated by the country’s home-buying rules, including the practice of “blind bidding” where offers are kept secret when someone is selling a home.
Some believe that secret bidding forces each potential buyer to offer as much as they can, and the practice has been blamed for accelerating price gains.
Properties often sell for hundreds of thousands of dollars over the asking price.
“The bid war is crazy,” said Ritika, a first-time homebuyer who goes by one name. “You will see a house listed for C$500,000 ($395,875) and you will place a bid for C$800,000 thinking that you will easily make it.
“But suddenly some unknown investor with deep pockets will jump in and buy it for C$1 million.”
Ritika, who moved from Dubai to Canada last year, says the government must regulate the market and take control of the situation.
“Agents do not disclose the other bids and leave you disgusted and waiting hopelessly,” she told The National.
The foreign buyer moratorium indicates that Mr Trudeau is becoming more assertive about taming one of the developed world’s most expensive housing markets, and that his government is growing more concerned about the political backlash to inflation and the rising cost of housing.
Ajay Sharma, a Toronto sales representative at Royal LePage, one of the oldest property companies in Canada, said the government was under immense pressure to cool the market, which he described as having followed a “reckless trajectory”.
“Recent decisions are more of a damage control exercise by the Canadian government,” Mr Sharma told The National.
“They seem more inclined towards pleasing voters and winning their confidence and votes.
“They will not yield long-term benefits as, currently, the real estate market is struggling with the lack of inventory and a severe shortage of supplies.”
Gagandeep Soodan, another first-time homebuyer, considers himself lucky to have found a house of his choice after repeated bids.
Mr Soodan described property purchases as a “frustrating” experience for many first-time homebuyers in Canada.
The government should be “more proactive in safeguarding the interests of genuine home buyers and it would be great to see stricter measures in the coming months”, Mr Soodan, who works with a global digital advisory company, told The National.
Many homeowners have seen prices of their properties more than triple in the past three to four years.
For example, a 172-square-metre (1,850-square-foot) townhouse in the Waterloo community, which was priced somewhere between C$250,000 to C$300,000 in 2018, sold for more than C$850,000 in recent months.
Rents also have increased steeply.
“I am paying $2,300 a month in rent for a nearly 2,000-square-foot townhouse … the same was available for $1,000 to $1,200 a month in 2020,” said Tim Langer, a software engineer who moved from California to Waterloo last year.
“If you go nearer to Toronto in cities like Milton, Brampton and Mississauga, the rental market is even worse.”
But a resident of Chatham, Ontario noted that foreign buyers only make up a small percentage of sales.
“The restriction on foreign buyers will have no impact on the housing market and prices,” said the former government worker, asking for anonymity.
“Home prices in Canada are very reasonable when they are compared to other developed countries, and in most cases homes here are less than in other developed countries.”