“Overall, I believe the housing market is sound, but as Minister of Finance, I want to make sure we are proactive in assessing and addressing the factors that could lead to excess risk,” – Finance Minister Bill Morneau
This fall, the federal government is heavily involving itself in the Canadian housing market and real estate measures. On October 3rd Finance Minister Bill Morneau publicly shared Canada’s new rules, designed to control the amount of foreign investment into Canadian real estate and to protect Canadians from signing off on mortgages they simply cannot afford. These major changes to our real estate legal system aim to prevent tax leakage, enforce the current law, decrease the risk for tax payers and most importantly, ensure that everyone who is playing in the Canadian real estate market is playing by Canadian rules.
New Rules in Real Estate
- Launching immediately, non-residents of Canada can no longer buy a home in Canada and receive the principal residence tax exemption. This new law closes loopholes that previously enabled foreign buyers to avoid having to pay capital gains upon sale when the home is declared as a primary place of residence.
- Beginning on October 17th, all insured mortgages require a “stress test” that assesses and confirms that the borrower is capable of making their mortgage payments if interest rates peaked to the five-year rates estimated by the big banks. The goal of this new rule is to manage the risk of Canadians and prevent citizens from going into unmanageable debt.
The Forecasted Impact of Canada’s New Real Estate Measures
The new foreign buyers law may help prevent an incredible spike in the cost of housing in Ontario. This has already happened in British Colombia, and, as an effort to cool down the housing market, the BC government implemented a 15% foreign buyers’ tax this past summer. Despite the Finance Minister’s presentation of this new law, many critics argue that Toronto will soon be forced to tax foreign buyers as well.
The new mortgage law will deeply influence buyers and the value of homes they may qualify for. Some experts argue the new mortgage law will prevent buyers from qualifying for a loan in particularly high-priced Canadian real estate market segments. First time home buyers are particularly implicated by this new law, in that they may find themselves waiting longer before they purchase their first home.
Despite the media and market’s diverging responses to these new real estate measures in Canada, Finance Minister Mr. Morneau is adamant that “the new measures are aimed at addressing concerns that extremely low interest rates have encouraged Canadians to overextend themselves financially, posing a risk to both individual homeowners and the broader financial system.”[1] Only time will tell if the new real estate changes will genuinely improve the Canadian real estate market and its homeowners.
If you are interested in learning more about how these new real estate measures may impact you as a home buyer or a home owner, contact our team of expert Realtors® today at Performance Realty. If you are in the market of buying or selling a property, contact our team of skilled Realtors for a free, no obligation market evaluation of your current home. Our sales representatives are happy to help answer any questions you might have about the real estate market in Ottawa.
[1] http://www.theglobeandmail.com/news/national/ottawa-unveils-new-housing-measures-to-slow-foreign-real-estate-investment/article32206297/
