January 1 marked the beginning of the Prohibition of the Purchase of Residential Property by Non-Canadians Act, a temporary ban to prevent investors from purchasing Canadian homes for two years. According to the Fall Economic Statement released by the Canadian Government in November 2022, the ban “is about curbing speculation and ensuring that houses are used as homes for Canadians to live in– and not used as financial assets for foreign investors.”
What started as an attempt to make housing more affordable for Canadians is now creating uncertainty surrounding the commercial real estate market. The Act now prohibits a broad range of commercial transactions and is forcing commercial projects to be put in hold.
How Canada’s Foreign Buyer Ban Might Prohibit your Commercial Transaction
The Prohibition on the Purchase of Residential Property by Non-Canadians Regulations states who is a “non-Canadian”, what constitutes a “residential property”, and what is a “purchase”, and it appears that the Act does in fact bar a range of commercial transactions.
First, a “residential property” is not limited to homes. According to the Regulations, it includes any land, vacant or developed, that does not contain any habitual dwelling, that is zoned for residential or mixed use, and is located within a census agglomeration or a census metropolitan area. This could include commercial assets, such as office buildings, shopping centres, industrial buildings, and farmland that meet the above criteria.
Second, the Regulations consider the “purchase” of residential real estate to include the direct or indirect acquisition of any legal or equitable interest (with some exceptions), meaning that the acquisition of a lease or mortgage in a residential property by non-Canadians could be barred. Since this applies to direct and indirect purchases, the ban may catch share purchases and asset purchases as well.
Lastly, the Regulations suggest that even a minor element of foreign ownership/control (3% or more) can result in a corporation/entity to be considered “non-Canadian”, even if it would ordinarily be thought of as being Canadian.
How Canada’s Foreign Buyer Ban is Forcing Commercial Projects to be Put on Hold
The Prohibition on the Purchase of Residential Property by Non-Canadians Act has inadvertently put a halt on many commercial projects. According to Kevin Lee, head of the Canadian Home Builders’ Association, hundreds of commercial real estate transactions have scuttled so far, with deals falling through daily.
The issue stems from the broad scope of the Regulations discussed in the above sections. Because of all three of those definitions, many commercial real estate deals have been cancelled or are on hold even though they have nothing to do with residential housing.
Until more clarification is provided by the government, real estate professionals in the commercial sector should remain extra cautious with their transactions.
Breaching the Act is considered a criminal offence and those who violate it can be fined up to $10,000, so agents should exercise a heightened degree of caution and consider additional due diligence while we await further clarification from the government.
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