Brian O'Donoghue

 Beginning January 1, 2023, non-Canadians will be subject to a two-year ban on the purchase of certain residential real estate in Canada – and anyone who knowingly helps a non-Canadian buy a house could find themselves in hot water.

In an effort to make housing more affordable, the federal government introduced the Prohibition on the Purchase of Residential Property by Non-Canadians Act in its 2022 Budget. The act received Royal Assent as part of Bill C-19 on June 23, 2022, and is expected to come into force on January 1, 2023, prohibiting non Canadians from directly or indirectly buying residential property in Canada for a period of two years. (the “Ban”)

Broadly speaking, the Ban prohibits foreign corporations and individuals who are not permanent residents of Canada or Canadian citizens from purchasing residential real estate in Canada between January 1, 2023, and December 31, 2024. Any contractual obligations arising or assumed prior to January 1, 2023, will not be subject to the Ban.

Certain key components of the Ban have yet to be determined and will be subject to additional regulations (the “Anticipated Regulations”) expected later this year. For example, the classes of persons exempt from the Ban and whether the Ban will apply to vacant land that could be subject to residential real estate development in the future have yet to be determined, among other items.

Who Is Impacted by the Ban?

Beginning January 1, 2023, persons who meet the definition of “non-Canadian” under the Act will be subject to the Ban, including:

• corporations incorporated outside of Canada;

• corporations “controlled” by foreign corporations or individuals who are not permanent residents • of Canada or Canadian citizens (with “control” to be defined in the Anticipated Regulations);

 • individuals who are neither a Canadian citizens nor a permanent residents of Canada; and 

• such other individuals and entities to be listed in the Anticipated Regulations.

Types of Property Affected

The Ban will apply to certain property located in Canada that meets the definition of “residential property” under the Act, including:

• detached houses or similar buildings containing three dwelling units or less;

• a part of any building that is a rowhouse, semi-detached house, residential condominium or other similar premises intended to be owned apart from other units in the building; and

• such other residential properties to be listed in the Anticipated Regulations.

Available Exemptions

Notwithstanding the Definition of “non-Canadian” set out in the Act, the Ban will not apply to the following persons:

• refugees;

• non-Canadian individuals who purchase residential real estate with a spouse or common law-partner provided that their spouse or common law-partner is a Canadian citizen, a permanent resident of Canada, a person registered as an Indian under the Indian Act, or a refugee;

• temporary residents who meet certain criteria to be prescribed in the Anticipated Regulations; and,

• such other classes or persons to be set out in the Anticipated Regulations.

Penalties and Enforcement

Notably, every person or entity who contravenes the Ban and every person or entity who knowingly helps someone who is subject to the Ban buy a residential property will be guilty of an offence and liable to be fined up to $10,000. Furthermore, any directors, officers, agents, mandataries, senior officials or managers of a corporation or entity that contravenes the Ban may be held personally liable if they direct, authorize, assent, or otherwise participate in contravening the Ban.

If a person or entity is found guilty of an offence under the Act, the Minister will have the authority to apply to the local superior court to seek an order that the residential property be sold in accordance with the Anticipated Regulations.

Because the offence provisions under the Act are not limited solely to the purchaser tial properties, liability may arise for a plethora of persons involved in Canada’s residential real estate industry, including sellers, real estate agents, developers, assignors, assignees, lawyers and other professionals involved in any alleged contravention of the Act.

Moving Forward

Looking to the future, a variety of important details of the Ban have yet to be determined. We will know more once the Anticipated Regulations are published by the Government of Canada. However, what is clear based on the language of the Act is that those involved in the residential real estate industry will need to be cautious and make reasonable efforts to identify non-Canadian buyers and sellers who cannot utilize an available exemption under the Act.

Pre-construction condo sales plummet 79% as market cools

The third quarter saw the steepest annual decline since 2009, expected to impact construction later next year, said market research firm Urbanation. Greater Toronto Area (GTA) new condominium sales totaled 1,748 units in the third quarter, declining 79% from a year ago (8,320 sales) amid soaring interest rates and construction costs that sent Toronto region developers to join their customers on the market’s sidelines.

A record 189 projects in development reported zero sales during the quarter, a 67% share of total projects with available inventory. It was the biggest annual decline — apart from the start of the pandemic in the second quarter of 2020 — since the first quarter of 2009. That was the beginning of the global financial crisis, but Toronto’s condo boom was already underway by then.

It calls into question the viability of some projects, particularly those that launched a while ago and still haven’t met their sales targets to qualify for construction financing, said Urbanation president Shaun Hildebrand. Meantime, costs have continued to rise. “But most projects have sold enough to proceed, and they are fine with waiting for the market to come back in order to obtain the prices they are asking,” he said.

The slowdown in new condominium sales and presale launches is not expected to negatively impact construction activity until the second half of 2023, as developers will remain active in the next few quarters starting work on the large number of units that launched and sold in the previous quarters.

But Hildebrand downplayed the prospect of a market crash, saying his company has been predicting for months that developers would end up delaying about 10,000 units this year. It will be the second half of next year before the downturn in sales and new project launches impacts construction, he said. Until then, developers will be busy with the 96,510 condos they sold previously and are already building.

Ninety-one per cent of the condos that are under construction in the GTA have been pre-sold. Developers depend on pre-construction sales to obtain financing in order to build their projects. The majority of units are sold to investors. Sometimes they buy them knowing that they won’t necessarily make back all the carrying costs on rent for years, but the price escalation in the region has been such that those investors could expect to still turn a profit from the equity of their units.

“Ultimately, investors have a pretty strong outlet in the rental market,” said Hildebrand. “If they want to hang onto their unit and they have a long-term time horizon, then they’re not too dissuaded from having some negative cash flow or waiting for the unit to recover in terms of its price.”

Despite low sales and delayed launches, the inventory of condos also continued to decline and that’s helping push prices up, he said.

The projects that launched in the third quarter had a record average price of $1,380 per sq. ft. on a 642 sq. ft. unit. But the price for resale condos in the same quarter was down 5 percent compared to the second quarter and was 10 percent below a first-quarter record.

That difference in new construction versus resale units is part of the current hesitancy by condo buyers, he said. Developers can’t bring down the cost of pre-construction units because of high construction costs that are also subject to interest rate rises.

For now, there’s about a 20 percent premium buyers pay on a brand-new unit. But if the gap between new and resale doesn’t narrow, that could lower the price of presale condos, said Hildebrand.

“With more and more high-priced projects coming to completion and resale prices declining, by the second half of next year, if resale prices don’t see any improvement, basically these presale units will be worth less than what the buyer paid in pre-construction,” he said.

That could lead to a glut in assignment sales — those are sales by investors who bought resale construction units but then sell them before the building is completed. It’s a trend that has already begun, but because assignment sales aren’t listed on the real estate industry’s Multiple Listings Service (MLS), it’s not clear how many of those are already on the market.