Justin Trudeau‘s government has announced extreme measures for the real estate market to fulfill his extravagant campaign promises.
As of Jan. 1, the so-called “Law on the Prohibition of the Purchase of Residential Property by Non-Canadians” entered into force, formally approved in December of last year.
As evidenced by its name, the law prevents any foreigner (whether an individual or a company) from buying real estate in Canada without living in the country.
The measures aim to forcibly strangle demand in the housing market to drive down prices.
The restrictions were already in force in the cities of Toronto and Vancouver. The State of Ontario already established a special tax of between 15% and 20% on the purchase of homes by non-resident aliens.
Trudeau’s measures generalize the restrictions, and he turns tax discouragements into direct prohibitions throughout the national territory.
The distortionary measures of the Canadian Liberal Party (which is not at all liberal) are deployed at an extremely delicate moment for the real estate market.
The rise in the monetary policy rate by the Central Bank of Canada caused a strong recessive impact on the sector.
The average Canadian house price plummeted 13% throughout 2022, while the short-term interest rate climbed from 0.25% to 4.25% in December.
Likewise, the four-month average of government-granted housing construction permits fell 6.3% from April 2021, and new construction orders plummeted 16% from June 2022.
The purchase restriction by foreign individuals and companies could negatively impact demand, pushing prices down, but also shock on supply and incentives for the construction of new homes.
The real estate market could reduce the supply of real estate and offset the effect on foreigners’ housing demand.
In the long term, it is clear that the “supply effect” threatens to outweigh the demand penalty, and Canadians will be forced to bear even more unaffordable prices.
Since housing construction involves medium- and long-term processes, even if the ban lasted 2 years, the negative effects on construction activity could remain for much longer.
With information from La Derecha Diario