London, U.K.-based Grosvenor Group, which has built and financed thousands of homes in Canada since 1952, is currently developing a large-scale project in Burnaby that will deliver 450 below-market rental homes and 2,100 market rental units into a market starved for rental housing.
But, had the federal government’s two-year ban on foreign homebuyers been in effect last year when Grosvenor was doing the land assembly, the project would never have started.
“We would have been prohibited from making this contribution to the housing supply,” said Graham Drexel, chief financial officer, Grosvenor - Property Americas.
The Prohibition on the Purchase of Residential Property by Non-Canadians Act, which came into force January 1, 2023, is playing havoc with residential and commercial real estate markets, industry spokesmen say.
Meant to make Canadian housing more affordable, it threatens to do the exact opposite, critics contend.
The legislation was widened after the concept was first floated early in 2022.
The law’s definition of residential property now includes land that is zoned for residential use or mixed use, which covers huge swaths of commercial land across the country, including nearly all urban real estate.
“To-date, the foreign-buyer ban has not impacted our ability to acquire land for future development of rental housing,” Drexell told Western Investor. “However, if amendments to the currently drafted regulations are not made, it will absolutely impact our ability.
Grosvenor also provides financing to local residential developers, but this is also threatened under the ban, which outlaws participation in Canada’s housing market by entities with even a minuscule foreign ownership.
“We are re-assessing whether we can provide this financing in the next two years because our capital may trip the extremely low ‘foreign buyer’ control threshold, which is currently set at 3 per cent,” Drexel said. “This extremely low threshold is something that has been identified by industry groups as a potential impediment in supplying much needed housing in Canada.”
Kurt Kuester, a vice-president at Colliers in Vancouver, said offshore real estate financing is especially vital today because Canadian banks are pulling back and Canadian interest rates are rising
Kuester said at least four major rental projects In Metro Vancouver representing about 500 rental units are affected.
“They will have to look at other options,” he said.
Yet, as developers seek different sources of financing, each source now must be vetted to ensure that it does not have 3 per cent or more foreign ownership.
Some have voiced concern that real estate investment trusts (REITs), which are very active in Canada’s multi-family market, could also be hampered because shares are often held by foreign investors. But, according to the act, REITs are exempt from the legislation, provided they are listed on a Canadian stock exchange.
However, the legislation has also put an additional administrative burden on companies who sell or lease residential real estate to ensure that they are not dealing with a non-Canadian. This can include commercial strata sales or leases in mixed-use properties with a residential component.
“There is a series of unintended consequences flowing from the foreign-buyer ban,” Kuester said, which he suggested was rushed into legislation without much foresight.
In cases like the foreign buyer ban, the federal government will typically release the regulations 30 days or more ahead of time to allow for review and feedback.
This time, the regulations were released on December 21, 2022, less than two weeks before the ban took place.
The Canadian Home Builders' Association (CHBA) is among those calling on the federal government and Canada Mortgage and Housing Corp. (CMHC) to change regulations within the foreign buyer ban they say work against building more housing supply.
“We've tried to say, ‘Hey, this is a big problem.’ It's not just a question of before it comes into law, it has become law,” CHBA CEO Kevin Lee told Glacier Media.
In a prepared statement, a spokesperson from the Office of the Minister of Housing and Diversity and Inclusion said that the federal government is closely monitoring the implementation and impact of the ban across Canada.
"We will continue to engage with stakeholders as we consider potential additional steps to ensure this measure does not have unintended impacts on communities," the statement said.
