Canada says ‘no’ to foreign buying; should Australia follow suit?

Proposed by Prime Minister Justin Trudeau during the 2021 election campaign when soaring prices put home ownership out of the reach of many Canadians, the new policy aims to boost housing supply and ultimately make home ownership more affordable for its citizens. 

“The desirability of Canadian homes is attracting profiteers, wealthy corporations, and foreign investors,” his party stated at the time. 

“This is leading to a real problem of underused and vacant housing, rampant speculation, and skyrocketing prices. Homes are for people, not investors.”

Notably, the ban has several exceptions, which include allowing refugees and permanent residents who are not citizens to buy homes.

Given the similarities between Canada’s and Australia’s property markets in terms of price surges since the pandemic started, it’s not surprising that the new policy struck a chord with Aussies. 

Following two years of rising property values, which saw average housing prices scale record highs, both countries now are seeing once burning-hot markets cool down — thanks to central banks in respective countries triggering their monetary policy tightening cycles and property buyers reeling from surging inflation. 

Moving in step with Australia’s property market, average home prices in Canada have already taken a downward trajectory since the peak in February.

But despite the downswing in prices offering some relief to aspiring home owners — the latest data showed that property values in both countries continue to be above pre-pandemic levels. 

With Canada’s housing crisis strongly resonating with Aussies, the ban’s announcement was met with a slew of enthusiasm on social media, consequently spurring calls for the Australian government to follow suit on the restriction on property buying. 

But InvestorKit head of research Arjun Paliwal voiced his scepticism of the measure, stating that a ban on foreign investment would be misguided and would not make any meaningful difference to housing affordability.

“In Australia, we already make foreign buying of property difficult through regulations and expensive through surcharges and taxes — adding a ban would do little to nothing for greater housing affordability,” he explained. 

The expert cited data from the Foreign Investment Review Board (FIRB), which showed that from 1 July 2020 to 30 June 2021, 5,310 residential real estate purchase transactions had a level of foreign ownership with a total value of $4.2 billion. 

“According to CoreLogic, more than 550,000 properties were sold during the period — this means that the share of purchases from foreign buyer [is] at around 1 per cent,” he further stated. 

On the contrary, Mr Paliwal stated that a ban on foreign buying would do more harm than good. 

“New dwellings represented 68.6 per cent of purchase transactions, followed by 18 per cent for vacant land, and 13.4 per cent for established dwellings in 2020 to 2021. This means foreign buyers are supporting housing supply creation,” Mr Paliwal said.