The government has introduced some new legislations to real estate which affects the purchase and sale process and who can buy real estate.
1. The Foreign Buyer Ban
Starting January 1, most foreign buyers are banned from buying residential property in most urban centers in Canada for 2 years. The purpose for this legislation, according to the CMHC, is to make homes more affordable for those living in Canada by cracking down on foreign investment.
The legislation applies to residential properties that are located in a census metropolitan area or a census agglomeration, says the Canada Mortgage and Housing Corporation (CMHC). A census metropolitan area has a total population of at least 100,000 people, with at least 50,000 living in its core, while a census agglomeration has a core population of at least 10,000 people. The regulations also apply to vacant land that does not have any livable dwellings but is zoned for residential or mixed use.
Homes in municipalities with a core population of less than 10,000 are not subject to the ban, nor are recreational properties such as cottages and lake houses. Additionally, the law does not explicitly ban the purchase of larger buildings with multiple units.
Here are a few of the highlights on the ban (more detailed information here):
Applies to residential real estate (defined as a property having up to 3 homes within it)
Does not apply to Canadian Citizens or Permanent Residents
There are some exceptions for students and work visa holders
Some exceptions based on location, most notable in BC are the Sunshine Coast, Squamish, Whistler and Pemberton (always double check!)
The ban will automatically expire after 2 years
2. The Homebuyer Recission Period
The HBRP, or “cooling off period,” provides buyers an opportunity to rescind—or withdraw—their contract to purchase residential properties up to three business days after an offer is accepted for any reason. Previously, a buyer could only rescind an accepted offer for not fulfilling or approving subject conditions such as financing and inspections.
Here are a few of the highlights on the HBRP (more detailed information here):
Applies to residential transactions starting on January 3rd, regardless of whether a realtor is involved in the transaction.
If a buyer exercises this right, they have to pay the seller a penalty equivalent to 0.25% or $250 for every $100,000 of the accepted offer price
Cannot be waived by the buyer or the seller
Applies to most residential transactions
Does not apply to foreclosures, court ordered sales or leaseholds
How could this impact me?
If you're looking to purchase and need a mortgage, it doesn't change much. Typically such an offer is "subject to finance" and can take approximately 5 business days to get financing approval. If you do not get financing approval or if the property fails inspection you can wait 4 business days to back out without paying the .25% penalty.
However, if a buyer wanted to make their offer more competitive, especially in a multiple offer situation, they might make a subject-free offer and rely on those three days to get their mortgage approval. Though 3 days isn’t much time, if they prepare as much as they can beforehand, and with the right mortgage broker, it is possible. The risk they'd be taking is that if the financing doesn’t get approved and if they need to withdraw their offer, they'd have to pay the rescission fee of 0.25%.
If you have any questions about either of these legislations and how they might impact you as a seller or buyer, feel free to contact me.