The federal government has amended its ban on foreign ownership of residential real estate, adjusting rules for vacant land and property for development purposes to provide additional clarity for dealmaking.
The legislation, called the Prohibition on the Purchase of Residential Property by Non-Canadians Act, took effect on Jan. 1 as part of a plan by the government to address affordable housing. The ban resulted in numerous participants in the commercial real estate market in Canada either unable or unwilling to do deals until regulations were clarified, law firm McCarthy Tetrault said in an article posted to its website Tuesday.
Changes announced by Ottawa to the legislation this week will allow those who hold a work permit or are authorized to work in Canada under the Immigration and Refugee Protection Regulations to purchase residential property. Work permit holders are eligible if they have 183 days or more of validity remaining on their work permit or work authorization at the time of purchase and have yet to purchase more than one residential property.
"These amendments strike the right balance in ensuring that housing is used to house those living in Canada, rather than a speculative investment by foreign investors," said Ahmed Hussen, minister of housing, diversity and inclusion, in a Monday statement.
The amendments took effect on March 27.
While the initial legislation was aimed at affordability issues, Canadian home prices have been falling for almost a year now. The Ottawa-based Canadian Real Estate Association said last month the average price of an existing home sold across the country in February was $662,437, down 18.9% from a year ago when the market peaked.
"These amendments will allow newcomers to put down roots in Canada through home ownership and businesses to create jobs and build homes by adding to the housing supply in Canadian cities," said Hussen.
REIT Concerns
Ottawa was also dealing with concerns raised by real estate investment trusts and land developers on the legislation's impact on their operations. The amendments announced this week increase the foreign corporation control threshold from 3% to 10%.
"This is a significant increase from the prior 3% threshold, which we previously noted would capture many entities in the commercial real estate industry that would not intuitively be considered to be non-Canadian," McCarthy Tetrault said.
Ottawa is repealing a section of the regulations so the prohibition does not apply to all land zoned for residential and mixed-use. Vacant land zoned for residential and mixed-use can now be purchased by non-Canadians and used for any purpose by the purchaser, including residential development.
The amendments also extend the exception currently applicable to publicly traded corporations under the Act to publicly traded entities formed under the laws of Canada or a province controlled by a non-Canadian.
The industry began to realize the unintended consequences of the language used in the Act in January and the regulations on many types of commercial transactions, said Michael Brooks, chief executive of REALPAC, which represents 125 of Canada's largest commercial real estate companies, applauded the changes.
REALPAC noted while the intention of the Act was to stop foreigners from outbidding Canadians for housing, specific provisions of the Act and the regulations also impacted non-residential properties, caught public companies and REITs in a reverse onus trap, and penalized long-established foreign developers in Canada who were helping with our supply problem, among other issues.
Brooks said the amendments to the regulations fix most, if not all, of those unintended consequences, including exempting development altogether, exempting public entities altogether, and exempting purchases of land in mixed-use zones, amongst other amendments.
"We have to give credit" to government officials for "listening to the industry's concerns with the Act very carefully and expediting the fix at the federal level so quickly," said Brooks in an emailed comment to CoStar News. "I've never experienced such a quick legislative process during a legislatively busy time by any level of government."