The Underused Housing Tax & Foreign Investment

[00:00:00] Welcome to The Canadian Real Estate Investor, where hosts Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio. So you're not going to believe this. Do you remember the UHT from last year? Okay, take it easy man. I don't know if you're supposed to share those kind of private details on a show like this. No, no, no. You're thinking UTI. I'm talking about the UHT, the Underused Housing Tax.

[00:00:28] Right, right, right. Of course, the tax on vacant homes introduced in 2022, a 1% annual tax on vacant or underused residential properties owned by foreign nationals to increase housing availability. Much different, much different than a UTI. Yeah, not a UTI at all.

[00:00:51] So, according to the Globe and Mail, the CRA, the Canada Revenue Agency, has waived nearly $2.5 billion in interest and penalties related to Ottawa's tax on vacant and underused homes held by foreign owners, a figure that dwarfs the amount of revenue that it was even going to make. So, the amount of money that it was going to raise, the penalties and interest is like way, we're going to get to the numbers, but way bigger than the revenue of the new levy.

[00:01:20] Yeah, we're going to talk all about that today as well as whether or not foreign investment is even an issue in Canada. We're going to talk about how despite the foreign buyer ban, foreigners can still actually buy real estate in Canada. So, if you are a foreigner looking to buy real estate in Canada, we're going to give you the how-to on that. What are the top countries with foreign investment here in Canadian real estate?

[00:01:45] And maybe we'll round off with what are the top foreign countries that Canadians are investing in. So, we'll look at who's investing in Canada and where Canadians are investing abroad. And I guess we'll start off with the UHT then. By the sounds of it, nobody really complied with the tax or like the filing was confusing. I remember we were talking about this because they bounced it around so many times. We predicted this earlier on the show.

[00:02:11] A lot of these foreign investors would basically see these non-filing penalties as a privacy tax. And now they don't even have to pay that privacy tax. Yeah, the UHT, which is the underused housing tax, again introduced in 2022, proposed a 1% annual tax on vacant or underused residential properties that are owned by foreign nationals. And that was to increase housing availability.

[00:02:35] However, the complex reporting requirements were a bit of an entanglement for many Canadians, which prompted the CRA to repeatedly grant relief to late filers and also change the filing date a couple of times. In response, they largely eliminated filing requirements for Canadian homeowners and corporations beginning the 2023 tax year, which we reported on the show.

[00:03:00] Now, the Global Mail found that according to the public accounts, which include the federal government's audited financial statements, the CRA waived nearly $2.5 billion in interest charges and penalties for 2022 alone. So back when we talked about the UHT for the first time, they had estimated that they would raise about $49 million that they would have collected.

[00:03:30] So basically, they waived $2.5 billion in interest charges and penalties. And there was only $49 million in revenue that was supposed to be collected from this program during the 2023-2024 fiscal tax year. Math doesn't seem to be mathing, but the Global Mail got a comment from a guy named John O'Key. Am I saying that right? John O'Key? Looks like O'Key to me. O'Key? That's a cool name. Vice President of Taxation at the Chartered Professional Accountants of Canada.

[00:04:00] So probably better at math than we are, Dan. He felt that the high amount of waived penalties indicates widespread confusion and administrative challenges when the tax was first introduced. This suggests that the tax affected many Canadians. I know you and I filed like we had to do a lot of this for corps when kind of scrambling for the dates to say that they were like to stipulate kind of the status on all of these investment properties.

[00:04:28] So it affected a lot of Canadians, not just foreign nationals that it was targeted at apparently. Yeah, and tax experts have widely criticized the taxes initial design for creating complex reporting requirements and harsh penalties for Canadian taxpayers who ultimately wouldn't owe any money. So O'Key went on to say that the total penalties and interest waived is remarkably high as we observed compared to the expected revenue.

[00:04:54] So basically, this was a big policy misfire. I mean, it was done with good intentions. Well, you know what they say about good intentions, Dan? No. What do they say? You know, the road to hell paved with good intentions, you know. Do you actually not know that old saying? Ah, right. Of course. Yeah. Yeah.

[00:05:14] So apparently now the CRA is the one who's under fire for it because the comments and Reddit and Twitter are not kind of the CRA. Even though I would say this is really more of politicians trying to execute something and making everybody scramble to figure it out, including the CRA, right?

[00:05:35] Like I would imagine they probably were not happy when somebody, you know, when they are hearing for the first time the politician saying, hey, we're going to put in this, you know, underused homes tax. And they're like, oh, here we go. Right? So I imagine they're just as much of a victim as someone. So like, I think a lot of people want to think that they're doing something wrong here. And then people are always scared to kind of go after the CRA. But now they're being forced to walk it back.

[00:06:02] And it looks bad on them as a government agency, even though it wasn't really their idea. Yeah. Yeah, totally. You don't want to mess with the CRA. Like the IRS, you just, you don't want to mess with those governing bodies. And I remember, Dan, you're right. When this first came out, we did like two episodes on the UHT because they changed the filing date a few times. And there was like, you know, new information coming out.

[00:06:26] And we felt it was our responsibility to try to keep everyone informed as to what they actually had to do to comply with this. Yeah. So the UHT was introduced with two main goals. Number one, to discourage foreign owners from keeping residential properties vacant and to generate revenue for housing initiatives. However, the initial rules created unexpected complications by requiring many Canadian homeowners with properties held in trusts or partnerships to file special tax returns just to claim exemptions.

[00:06:54] Canadian corporations were also subject to these filing requirements. So maybe we should take a little step back here and kind of re-answer some of the questions that we posed in those initial episodes, which was why would someone even want to keep a house vacant? Like we're real estate investors and landlords. Don't we buy real estate for rental income? Yeah.

[00:07:21] So there are several reasons why foreign investors might intentionally keep properties vacant. I think we're looking at a different class of wealth here probably. Like, you know, a lot of us are buying for rental income because we want to be wealthy. Whereas a lot of wealthy people maybe are buying for lack of income because they don't want to look as wealthy as they are, right? That's a nice problem to have, I guess. Loop the CRA back into it. Yeah.

[00:07:50] So tax sheltering could be a big one. Shelter wealth from taxation in their home countries with appreciation in Canadian real estate or, you know, like, because really the return that a lot of people were buying it for in Canadian real estate over the last little bit was for, you know, buy low, sell high. And historically, Canada had been pretty good at delivering on that and a relatively safe investment vehicle. The next would be capital preservation.

[00:08:17] So some investors, particularly from countries with unstable economies or strict capital controls or maybe, you know, heading towards like the state seizing certain things or capital or whatever it is. They liked Canadian real estate because it protected their wealth from domestic economic or political risks in the country that they were in. The other is regulatory avoidance. So this, I think, is a big one, obviously, especially most foreign investment is in Ontario and BC.

[00:08:42] It might deter some investors from renting is fear of tenant protection laws, right? It's like, it's literally like you, I've had conversations with foreign investors and they were like, you know, as somebody who isn't in Canada, isn't able to manage all of this, doesn't trust the system or had bad experience with property managers, I would literally rather leave the house vacant. Yeah.

[00:09:06] It's like, okay, well, that's a, you want to talk about policy failures, but money laundering, obviously pretty big theme in Canadian real estate kind of doesn't get talked about enough, I think. But empty homes can be used in money laundering schemes where the property itself serves as a means to clean illegally obtained funds. So you see a lot, like a lot of this isn't flipping, right? Paying contractors cash, et cetera. And we've done full episodes on the money laundering stuff as well.

[00:09:31] Not for a while, probably, but if you dig deep into the, our episode catalog, you'll find stuff where, and we pulled some crazy stories, Dan, you know, people walking into casinos with duffel bags. And two days later, it's in, you know, that duffel bag of money has turned into a mansion and it's, it's, they're empty. Yeah. I mean, I, I've seen a lot of guys do it like up in, around the lakes, you know, you see in cottage country, it like literally like, you know, in. Like Ozark style stuff. It's literally like, it's literally like that, right?

[00:09:59] Cause like you get a lot of local contractors, they want it. They take cash and, you know, you know, like, uh, that's, that's when, when all the local contractors are driving a $200,000 pickup trucks, maybe there's something going on. But anyway, so these practices, well, I guess the last one was tax loss harvesting, which I mentioned, you know, some, some investors deliberately maintain vacant properties to generate paper losses, which can be used to offset gains in other investments for tax purposes.

[00:10:23] So while potentially profitable for investors, obviously contribute to housing shortages among other obvious moral issues associated with some of the other entrepreneurial activities in the, in the list there, but, and, and translates to affordability issues in major Canadian cities, which is why the government's put some effort into doing something about it. For sure.

[00:10:41] I mean, every piece you just mentioned there exacerbates the problem that we already have right now, initially failing to file on time triggered penalties of $5,000 per homeowner and $10,000 per corporation. Remember, usually if you are owning properties in a corp, all of this stuff, like any penalty you'll receive in a, in a corp is going to be much higher than if you just own in your personal name, the same, uh, for any kind of landlord tenant stuff.

[00:11:10] But this again, 5,000 for homeowner, 10,000 for corp. Ottawa later reduced these minimum fines to $1,000 for individuals and only $2,000 for corporations. And that was effective back in 2022. So kind of reeled back the, the consequences for, for missing this. And still hit $4.5 billion worth of people. Okay.

[00:11:32] Well doing that, like, I'm going to have to do the math on that while you're speaking next, but the definition of trust and partnerships under common law added another layer of complexity to determining who needed to do UHT return. According to this globe and mail article, they use an example in the article, parents who co-sign mortgages and were added to their adult children's home titles might unknowingly be considered. Holders of a bear trust.

[00:11:54] Similarly, couples who jointly own property often discovered that they were subject to UHT filing requirements because their joint ownership qualified as a partnership defined as two or more people joining together in pursuit of profit. Right? Like this is, and this is, it's just a, it's, it's really just a public education issue. Yeah. Issue, right? Where I do think I, I, I actually empathize for the, for the government agencies who are basically scrambling to try and figure out how do we tell the public all of the things that I just mentioned, all of these little nuances that I just mentioned.

[00:12:24] When the government just says, Hey, we're, Hey guys, this is what we're doing. And it's due by end of, end of next year. Right? So, and I mean, at that point, right? Like when we saw this come out, parents were co-signing like crazy on mortgages for, for adult children. So I remember there was a bit of panic.

[00:12:42] Like now speaking of trust structures, like you just mentioned in the bear trust issues, particularly interesting as it parallels the UHT situation in terms of a policy implementation challenge. So a bear trust occurs when a trustee holds a property for a beneficiary, but has no other active duties or powers or of management on that property.

[00:13:08] The trustee is essentially just a nominee holding legal title while the beneficiary has all the real rights of home ownership. I did the math here. So 2.5 billion is like a million, a million filings that failed to, to go. Wow. Yeah. So like, cause yeah, that's assuming $2,000, like that's assuming the high end too.

[00:13:34] So it could be double that if half of them were not look worthy individuals, right? So according to accounting firm, Doan Grand Thornton, bear trusts are commonly used to ensure privacy and anonymity of the true owner of a property. Again, we kind of returning to that idea of a privacy tax, minimize provincial land transfer tax or probate fees and transactions where beneficial ownership of a property is being transferred between multiple parties, but there's no change in a legal title.

[00:14:00] So facilitate efficient property transfer in corporate reorganizations where legal ownership may need to be transferred for multiple items, gift a child or minor or sorry, minor child or children with property who can't legally hold title or hold legal title on a property on behalf of joint owners of a joint venture or partnership. So right now the government did attempt to address bear trust through reporting requirements similar to that of the UHT, but they were faced with similar challenges, right?

[00:14:29] Complex identification of what constitutes a bear trust arrangement, difficulty in enforcement and compliance monitoring, unintended impacts on legitimate family property arrangements. So kind of people caught in the crosshairs of this, right? Again, as you said, Dan, a lot of confusion. This was really a failure in educating the public.

[00:14:51] Now, the UHT, like the UHT, these initiatives highlighted the challenges of implementing broad policy changes affecting complex ownership structures without creating unintended consequences for the ordinary Canadian. And due to widespread concerns about Canadians being unaware of their reporting obligations, the CRA made two interventions to waive interest penalties for those who filed late.

[00:15:15] So it was actually three episodes, I guess, that we had done last year because we did the original one plus the two extensions about the UHT filing deadline last year. So that's pretty wild. This is the fourth now. Wow. Yeah. So the agency did extend the deadline for submitting 2022 UHT returns twice.

[00:15:31] The first was from April 30th of 2023 to October 31st of 2023, and then April 30th, 2024, which aligned with the filing deadline for the 2023 tax year. And according to a CRA spokesperson who they were able to get to provide some insight in the Globe article, the $2.5 billion figure represents interest and penalties waived for the 2022 UHT returns that were filed and paid between the initial April 30th.

[00:16:01] The 2023 deadline and 2024 deadline and 2024 deadline. So April 23 to 24. Now that total came from more than 531,000 waivers. So the average waiver was approximately 4,600.

[00:16:19] The number of waivers was also approximately 25% higher than the number of foreign and nationals the government had estimated would be affected by the tax, which appeared to confirm that many Canadian taxpayers were affected as well. So the 49 million in UHT revenues referred to the 23 and 2022 tax years, according to the CRA.

[00:16:41] And the Globe also noted that responses to some questions from conservative MP Adam Chambers, the CRA spent approximately 59 million in fiscal years 23 and 24 to implement and administer the tax plus an additional 900,000 on advertising promotion to raise public awareness of the measure. So a net loss realistically on, and again, like I would, I'm willing to say that it, it probably sucks just as much for the CRA to like, to not have several years to plan.

[00:17:09] And for this to be a reactionary measure by the government to be like, Hey, this is what you got to do. And it's going to cost a lot more if you got to do it instantly instantly. Right. It's like that good, fast, cheap. So maybe I'm just trying to empathize pretty hardcore with the CRA because I want them to like me. But if anyone from the CRA is listening, we are, we're fans of you guys. Okay. Just, we fly under the radar. We file everything on time. Um, now this kind of flip-flopping, as you were just mentioning, Dan, right?

[00:17:36] Net loss and, you know, the, the quick turnaround, the lack of education behind this, this kind of flip-flopping really looks bad when you have a government, especially, uh, right down South, you know, uh, the United States doing something like talking about their doge initiative. That is the department of government efficiency. Now I might call this inefficiency. Yeah. And speaking of doge, I want to, I want to read a tweet from a guy named Shane Parrish.

[00:18:06] You have probably heard that name, Shane. He's, he's been in like the podcast game for a long time. I first heard him on Tim, uh, Tim Ferriss, his podcast, like, I don't know, it must've been like seven years ago or more. He also has a podcast of his own called the knowledge project, a blog called Farnham street named after Warren Buffett street. Actually. Cool. Yeah. So I've been a big, big fan of his for a long time. As I mentioned, heard him for the first time on Tim Ferriss, his podcast a while ago. Anyway, read me the tweet here, Nick. Yeah.

[00:18:33] So the tweet says, by the way, are they still called tweets now that it's not Twitter anymore? Or is it, I guess, I don't know what they're called. X X's X's. Okay. So we'll just stick with tweets for now. Okay. So the tweet reads, I want doge to exist in Canada.

[00:18:49] As the first step, if anyone is obsessed with reading the bills, going through the numbers, going through the results, making this a full-time job and publicizing it on X non-partisanly, contact me and I will help fund it. This isn't about who is in charge. It should always exist to help people hold governments accountable. I'm just going to pause there for a second because it said contact me and then he tags Harley F, which is Harley Finkelstein from Shopify. From Shopify.

[00:19:19] I thought so. Yeah. Not just he would help fund it. Harley and him would help fund it. A couple of good old Canadian billionaires helping to fund our own doge initiative up here. The tweet goes on to say, the goal is transparency, calling out egregious regulations and spending, arming people with information on how their government serves them and enabling them to contact their elected officials with facts.

[00:19:45] One thing, one of the things that makes the U.S. version so effective is that the threat to elected officials being challenged in the primaries. In Canada, there's no democratic process for challenging candidates who have already been nominated by their party outside of a general election. Parties control nomination contests tightly and decide who can run under their banner. Yes, you read that correctly.

[00:20:12] And there are many implications, including party votes, because of the threat you will lose party nomination in your riding. We must find a similarly effective stick in Canada to help challenge these. Transparency is a good first step, but it's not enough. If you have any ideas, let me know. Also, if you are interested in helping fund this with us, let me know.

[00:20:36] So quite the CTA, quite the call to action there from from this gentleman. Yeah, it's funny. So he followed it up with something like this. Yes, the CRA will audit me now. But honestly, now based on dealing with the PR blowback of this $2.5 billion UHT penalty waiver, the CRA would appear to be just as much a victim of the political flip flopping and probably empathetic to kind of attempts at efficiency and trying to do things right, in my opinion. Right.

[00:21:06] Yeah. Yeah. Now let's let's pivot here, Dan, and talk a little bit about foreign ownership. Right. Like, let's look at who actually owns the most real estate. Now, remember, foreign ownership of houses is currently banned in Canada. The government announced a two year extension to ban on foreign ownership of Canadian housing.

[00:21:31] On February the 4th of 2024, Chrystia Freeland, the former deputy prime minister and minister of finance announced the federal government's plan to extend the existing ban on foreign ownership of Canadian housing by two more years. Yeah. So according to the government's website, they felt that over the years, foreign capital flowing into Canadian residential real estate has intensified housing affordability concerns nationwide, especially in major urban centers.

[00:21:58] This foreign ownership has heightened fears that Canadians are being priced out of housing markets in communities across the country. Yeah. They're going to say that the government's on the government's website that as a part of using all possible tools to make housing more affordable for Canadians, the ban on foreign ownership of Canadian housing, which is currently set to expire on January 1 of 2025.

[00:22:21] So what have already expired will be extended to January 1 of 2027 foreign commercial enterprises and people who are not Canadian citizens or not permanent residents of Canada will continue to be prohibited from purchasing residential property here in Canada.

[00:22:42] This is kind of crazy because it ties in a little bit to that beneficial ownership registry thing that they also tried to do where, you know, I mean, hypothetically people are already owning Canadian real estate as foreign entities and just buying with a corporation. Like you would call it a, you would call it a, you would call it a, you would call it a SPV or special, special purpose vehicle. Basically that's like what, you know, more of like maybe a U S term, but that's what people create corps for the special purpose of doing something, they're doing something being bought, buying the house.

[00:23:09] And then you would have to know who owns all of the shares of that corporation. Right. And so, and, and the share structure of that corporation. And so they're kind of like retroactively having to go back and try and figure out these beneficial ownership registries of corporations. Cause you could have an Ontario corp from 10 years ago that you may, may not know properly the share structure of. Right. And somebody can buy something in it. And so, so there's been circumventions.

[00:23:32] They're trying to obviously deal with a lot of this all at once, but I think the market has done a lot of the work for fixing the housing affordability issue for them anyways. It usually does, right? Yeah. So they, so they go on to say that the ban and it's two year extension is just one part of the government's economic plan to make housing more affordable for Canadians. Bold action, blah, blah, blah. More homes faster, et cetera. You've heard it from every single politician. Oh, that's. Regardless of the color of the flag that they fly. The good old rhetoric. Yeah.

[00:24:02] And I mean, it seems legit, right? Yeah. Except if you Google exceptions to Canada's foreign buyer ban. Now we're talking. Okay. So there's a tool on the CMHC's website that if you find out if a property is in a CMA, a census metropolitan area or a census agglomeration.

[00:24:26] Now census metropolitan areas must have a total population of 100,000 with 50,000 or more living in the core of that CMA. And a census agglomeration must have a population of at least 10,000. Now, if you enter the address of a property in the top left corner of the map page, you'll see if it's in a CMA or a CA.

[00:24:52] So not only are they giving you the tools to try to help fix affordability, but they're also giving you the tools to kind of vigor out if this loophole works. Yeah, literally. So key highlights from the CMHC on the report that was put out. The act defines residential property as buildings with three dwelling units or less. This includes semi-detached houses and condominium units.

[00:25:18] The act doesn't prohibit the purchase of larger buildings with four or more dwelling units. Non-Canadians can purchase residential properties located outside of census metropolitan areas or CMAs or census agglomerations, which is the reason for the tool that you just mentioned. Certain exceptions apply, allowing non-Canadians to purchase residential property in defined circumstances. And if a non-Canadian or anyone knowingly assists, they have to pay a fine of $10,000.

[00:25:45] Again, I would say like 10 grand in the grand scheme of things for a real estate investor is like small. Like these are just like speed bumps or like privacy taxes. Especially if you're buying something with multiple units, right? I mean, if you're buying a larger, let's say five plus unit. But if you're buying three plus, it doesn't matter. Exactly. Yeah. And again, even if you're buying an expensive duplex, yeah, 10 grand. I mean, that's a couple appliances at the end of the day, right?

[00:26:15] I mean, it's not that crazy. Yeah. And the court could order a sale of the residential property if they catch you. So maybe worth obviously doing it the right way if you're going to do it, which there seems to be an adequate number of ways to do that. And I would say, you know, the fact that they want foreign investors buying multiplexes means that they want foreign investors creating housing, right? Like that's not stuff that's competing with regular, you know, me and you trying to buy our first house.

[00:26:43] They want them to be creating housing, not destroyers of housing, taking random single family homes and leaving them empty. Exactly. Right. We, this is, this is essentially a call for, in my perspective, this is a call for foreign investment saying, hey, come invest. You know, we've got a housing crisis. The best way to fix it is by buying or building these, these larger properties. You know, maybe some Canadians can't afford that. Okay.

[00:27:08] Here are the steps to follow to put your money into our, into our housing market. Now, somewhere else on the website, there's a CMHC report, Dan, I believe you have it pulled up from 2016 on foreign ownership in Canada's housing market. And it is jam packed with data. And I, I thought we should break it down a little bit for our listeners, Dan. Yeah. Great idea, Nick.

[00:27:30] Let's, let's just see if there's even as big of an issue as everyone is getting up in a fuss about like, was this policy really even worth putting into place? Right. Foreign ownership is still obviously a hot topic when people discuss housing affordability and market dynamics in Canada. So what's the headline takeaway here? Yeah.

[00:27:49] The big takeaway is that foreign ownership of condominium apartments was, and still is, a small factor in the market. In 2016, it was only around 2.2% in Vancouver and 2.3% in Toronto. Those are the two cities, of course, that always get demonized for too much foreign investment. And we look at it, you know, 2.2 and 2.3. And then even in Montreal, where we're going to be in a couple of days, where we're going to be in a couple of days.

[00:28:19] Looking forward to that. Montreal, it was only 1.1%, Dan. So a tiny fraction of the market. So the perception often feels like it's way higher, right? Especially in cities like Vancouver and Toronto, where foreign buyers get a lot of media attention. Did the report explain why these numbers are so low? Yeah, it did. It highlighted a couple of things. The first being that CMHC defines foreign ownership as properties owned by people whose primary residence is outside of Canada.

[00:28:47] So this includes Canadians that are living abroad. So it's not strictly, you know, I'm doing air quotes right now for all those listening. It's not strictly just foreign investors. Okay? These are Canadians that could be living elsewhere for the majority of the time. And second, while foreign ownership is small overall, it's concentrated in newer, higher-end condos and urban cores.

[00:29:10] And right now, through our realist course, we're helping, I think it's three different people that live abroad, right? There's someone in Germany. There's two people living in Australia that have gone there for work for a few years that are buying properties back here. So I'm wondering, would they fall into that category? Well, I think that that's where it becomes another question, right? Where in Canada, like, we're a population growth country, right? So you also get a lot of migrant or PR, permanent resident capital, right?

[00:29:40] And I actually saw an increase in the CRS scores, which is basically like a score on the quality, like the educational and employability quality of somebody who immigrates to Canada. I personally observed a jump up in that score. And it's kind of visible in the data. But basically, as soon as that foreign buyer ban took place, so probably people were saying, you know, I wasn't going to get my PR in Canada, but I can do it anyway. It's pretty easy to do. And so they're just doing that rather than being a foreign buyer, right?

[00:30:08] Those areas also tend to attract people moving there, right? You've seen the most immigration into Vancouver and Toronto. So you could get a lot of – like, there's probably a lot of it where people maybe aren't – you know, maybe they're living in Canada half the time or maybe they have their job in a different country. But they're still, you know, they're still owning here. Now, those areas, the cities you mentioned, they obviously tend to attract investors looking for stable long-term assets. But what about trends in foreign ownership over time? Were there any changes observed in the CMHC report?

[00:30:36] Yeah, the share of foreign ownership actually declined slightly between 2015 and 2016, aligning with levels from 2014. In Toronto, for example, newer buildings, those completed after 2010, had foreign ownership rates of 3.9%, almost double the rate for older buildings. Vancouver showed similar trends with 5% foreign ownership and new builds versus that 2.2% overall that I had mentioned.

[00:31:06] It kind of makes you wonder what happens if like somebody committed to a pre-con contract before the foreign buyer ban, you know, now they have to take possession afterwards, right? Sounds like a mess. Reporting nightmare. Yeah. So newer, larger buildings and prime areas are driving up the numbers. So you probably are getting a lot of foreign investment in the pre-con space in Toronto and Vancouver, which I think, like, I actually don't know if I have that big of an issue.

[00:31:29] Because half the time people are like complaining saying, oh, all builders are building is like these tiny little shoebox condos and nobody wants to live in them. And then you have your foreign investors who are the ones that are buying those and allowing them to get built by investing in those projects. It's, you know, it's like, well, wouldn't, isn't that if you're complaining about those two factors, wouldn't you be happier if they were combined? So anyway, I mean, they had like a foreign buyer's tax in Vancouver. Did they touch on that?

[00:31:57] Because I think 2016 is an interesting year because Vancouver, you saw basically values blow off massively from the foreign buyer ban, especially in the detached space. They did. Yeah. The 15% tax, which was introduced in 2016, led to an immediate drop in a foreign buyer activity in Metro Vancouver from 13% of purchases before the tax to about 1% after.

[00:32:22] The report speculated this drop might push foreign buyers to other Canadian cities like the two other classic culprits, the usual suspects, Toronto and Montreal. And has there been any evidence of that shift happening? A small uptick was noted in Montreal where foreign buyers were mostly from China, France and the US. But even there, foreign ownership stayed under 1%.

[00:32:47] It seemed that the tax did have a bit of a cooling effect in Vancouver, at least temporarily. Yeah, that's a solid insight. So to recap, foreign ownership is low overall, concentrated in urban cores and newer buildings and government policies like the foreign buyers tax can significantly impact the market. I know Ontario had to follow up in 2017 with their own foreign buyers tax. So maybe a lot of that capital got shifted there. Did the report touch on any other markets like Calgary or Halifax?

[00:33:14] It did, but foreign ownership in those markets was negligible. Less than 1% in places like Calgary, Edmonton, Saskatoon. And Halifax had the highest rate among some of those smaller Canadian cities at 1.2%. So likely, and that's because it's a growing city with a bit more international appeal there and a very, again, affordable market, right? Good investment. Dan, you and I are both keen on the East Coast there.

[00:33:44] Yeah. So I guess the last thing that I'll look at here is the reliability of this data, right? Is there any limitations here? It's a good question. CMHC does acknowledge that the data is based on surveys of property managers and other sources like land registries, for instance. So, of course, there is room for error, as there is in a lot of data that's collected in this fashion.

[00:34:09] And the numbers should be used as more of a general indicator rather than an exact measure. Got it. So while foreign ownership isn't the major driver of housing market challenges, it's an important factor to watch, especially in the country's largest cities. Let's maybe, while we're at this, look at the top countries actually investing in Canadian real estate. So China, so I'll go through the list quickly. China, United States, Hong Kong, United Kingdom, and Germany.

[00:34:36] And then now, obviously, we've got a lot coming from India as well. So China is historically one of the large sources of foreign real estate investment, particularly in Vancouver and Toronto markets. The U.S., significant investments in both residential and commercial properties. And I know we've been basically tailoring our course to U.S. investors who want to invest in Canadian real estate.

[00:34:57] Like, it literally seems like there's more appetite for U.S. investors to buy Canadian real estate than there is for Canadian real estate investors to buy Canadian real estate right now. And the big thing in the U.S. is, like, prices haven't come down. Rates are still, like, 7%. You know, and their market's just a mess. It is. And geographically, you're seeing a lot of markets rolling over and stuff. So they look at Canada and they say, oh, it's rolling over. So if you're a U.S. investor who wants to get into Canadian real estate, give us a shout.

[00:35:23] I guess if you're any of these investors on this list, we'll help you do it the right way and not have a negative contribution to Canadian society and be criticized by the government. Hong Kong, obviously, notable presence in luxury real estate markets, particularly Vancouver. United Kingdom, substantial investments in commercial properties and development projects. And Germany, major institutional investors in commercial real estate and multifamily residential properties. Fascinating stuff, man, honestly.

[00:35:48] And, you know, it's worth noting that these investment patterns can shift significantly based on things like global economic conditions and local policy changes like the foreign buyers ban that, you know, this whole episode has been about. There are some shocking stats if you look at some of the investor demographics. So let's go back to China. A significant portion of foreign buyers in Toronto have historically originated from China.

[00:36:14] Data from 2018 indicated that nearly 71% of total foreign buyers in Toronto were from China. 71%. That is crazy. Next on the list here, the United States and India. Now in the same period, buyers from the U.S. accounted for 4.6. And those from India made up 3.6 of foreign purchases in Toronto. So China just absolutely blows the competition out of the water here. Yeah.

[00:36:44] Now, I would say you're likely seeing a shift. China's economy is kind of melting down. So you're seeing a bit of a negative wealth effect there. Obviously, a shift towards India where the primary growth in our population is coming from as well as international students. And institutional investments through corporations can obviously mask the true country of origin for a lot of these investments. Totally, yeah. And especially with the U.S. dollar right now, that's so strong against all currencies. Like, you know, the Chinese yuan is at a record low against USD.

[00:37:14] Euro is at a record low against USD. Canadian dollar is doing very poorly against the USD. Scary. That could really shift those patterns. For sure. Yeah. I mean, this isn't a linear story, right? This is very reactionary. And for some of the very smart people and institutions out there, proactive. Yeah. So it's almost like you add another layer, right? Like, if you're buying something, you've got your price, you've got your interest rate, you've got your rents. Now, you've also got your foreign exchange, right? Yeah. So you're adding another lever to the equation.

[00:37:43] So can we call ourselves Forex? Are we Forex guys now, Dan? I would hope not. Okay. So this whole thing also has, of course, an impact on the overall housing market. But we also need to think about what kind of product they are buying, right? Although the percentage of foreign ownership appears modest, its impact is more pronounced in specific asset classes, specific market segments.

[00:38:08] So luxury properties, that seems to be the reoccurring theme and probably the most obvious one, right? Foreign buyers often invest in high-end properties, influencing price trend in this market segment. In Vancouver, single detached homes owned by non-residents were assessed at significantly higher values than those owned by residents, suggesting a concentration of foreign investment in luxury real estate.

[00:38:31] As a gentleman born and raised in Vancouver myself and spending a lot of time in my early 20s out there, I can attest to this. I saw it firsthand. The other thing that we are seeing that may seem like no surprise to anybody is condominiums. Non-resident owners, non-resident ownership is notably higher in newly built condos in BC. Non-resident owners known 9% of homes built after 2016, indicating a substantial presence in the condo market.

[00:39:00] And I actually think that we need, like, we shouldn't have to wonder why our condo market, a pre-con condo market, is having such a hard time right now. Like, we've literally demonized foreign capital. We've disrespected domestic capital. We've insulted real estate investors and called them all. You know, I mean, really, like- No, I'm laughing because it's a sad truth. We literally chased them out of the country. And now all of a sudden we're like, oh, you know- Sorry about that. Why is the whole thing masked? Oh, okay.

[00:39:30] Well, makes sense. We should also mention the provincial measures too on that. The Ontario introduced a non-resident speculation tax, the NRST 25. It started at 15%. I think it went up to 20%, 25% across the province. This one basically crashed the luxury market in the 905, like suburban GTA, in 2017. And that would apply to the purchase of residential property by foreign nationals, foreign corporations, and taxable trustees. Yeah.

[00:39:57] And meanwhile, back in BC, it had its own 20% foreign buyers tax in certain regions like Metro Vancouver, Capital Regional District, the Fraser Valley, Central Okanagan, and even the Nanaimo Regional District. And they've also implemented a 3% speculation and vacancy tax in major urban areas there. Yeah. Yeah. And obviously those were both pretty responsible for crashing the markets in Ontario and BC. So it's an evolving story.

[00:40:25] Make sure you avoid fines by paying your UHT. Make sure you avoid UTIs by drinking lots of cranberry juice. Make sure you attend a meetup. We got lots of meetups coming up January. We're going to be in Montreal, one of my favorite Canadian cities. Can't wait to meet the people there. First time ever in Montreal. Going to be there with LJ Realty's and Plex Drive. Is it Plex Drive or Plex Doctor? I don't know. I got to talk to them about that. But meetups, just link in the show notes.

[00:40:55] Eventually, it'll be on the website. We're working on a website combination right now. But realist.ca is where you can find the course, online community, eventually the meetups. And we have a free year-long New Year's goal-setting challenge starting next week. Make sure you turn into the kickoff call and we'll send you calendar invites every single week to keep you accountable for your goals because we want to help you reach them. That's it, I think. Anything else, Nick? No, I mean, look. New Year, same old us, I guess. But not really, Dan.

[00:41:24] I think you and I both have huge goals for this year. Big goals for the podcast. The meetups, the larger events that we'll be throwing. You know, we want to work with more people. We want to have more people listening to this podcast because our goal is to change the real estate investing landscape here in Canada. And we can't do that without you. So there are power numbers here. Come attend a meetup and get involved in all the stuff that we are doing.

[00:41:52] Thank you, as always, so much for listening. And we'll see you soon. The content of this podcast is for educational and informational purposes only. It is not intended as financial, legal, or investment advice. Always consult a qualified professional for advice tailored to your unique circumstances. The views expressed are those of the hosts and guests and do not necessarily reflect the opinions of affiliated organizations. Daniel Foch is a real estate broker licensed with Valerie Real Estate, Inc.

[00:42:19] Website is Valerie.ca, V-A-L-E-R-Y.ca. And a member of the Canadian Real Estate Association, the Ontario Real Estate Association, and the Toronto Real Estate Board. Nick Hill is a mortgage agent and partner at OWL. Mortgage license number 10317. Agent license M21004037. American license M21004037. Agent license M21004037. Agent license M21004037. Chimeland lost a copy of John Cary but a V-Q.