Compete against China? Canada prohibits foreigners from buying real estate

The Canadian government has proposed a two-year ban on foreigners buying real estate in a possible smack in the bow against communist China.

In the budget announced by Canada’s Treasury Secretary Chrystia Freeland, the government has proposed banning foreign buyers from buying more property in the country on the pretext of curbing rising housing costs.

That Winnipeg Sun reported that in the last two years alone, real estate prices in Canada have risen by more than 50 percent.

The newspaper said February saw the highest single rise in the country’s history before the Bank of Canada’s interest rate hike, which saw the benchmark property price hit C$869,300 (£531,300/$693,000).

As well as banning foreign buyers, the government will also seek to cool the housing market by investing billions in new housing projects and introducing a tax-free savings account for first-time buyers, the BBC reported.

Unlike the Federal Reserve in the United States, the Bank of Canada does not provide consistent statistics on foreign ownership of real estate. However, according to a 2016 Bank of Canada study, Chinese buyers accounted for nearly a third of Vancouver real estate spending in 2015, spending $9.9 billion.

At the time, financial analyst Peter Routledge, who compiled the data, reported that Chinese buyers also accounted for 14 percent — $7 billion — of total Toronto home sales.

Chinese investment has slumped over the past two years after Beijing cracked down on real estate firms in the wake of the communist country’s housing crisis, as Shenzhen-based Evergrande failed to pay off its debt after buying up huge swaths of vacant apartment blocks in anticipation of continued growth in the industry.

However, the ban on foreign buyers is likely to still affect many wealthy and often CCP-affiliated individuals in China, who use foreign property as a hedge against the yuan and protect their financial assets from confiscation by the communist regime.

In fact, it is technically impossible to own property in China as all land belongs to the state. Under the system, citizens are only allowed to lease the land from the state for periods of up to 70 years, forcing many wealthy Chinese to turn to western nations like Canada for real estate investment.

However, the budget released on Thursday leaves a critical gap for Chinese investors to continue buying property as an exception was made for overseas students.

Chinese students are the second largest group of foreigners studying in Canada, behind only India, with about 116,000 Chinese studying in the country in 2020.

Even state-run media in China has been critical of alleged “students” buying multimillion-dollar mansions in Canada. In 2016, for example, China’s state news agency Xinhua criticized the purchase of a $24 million mansion in Vancouver, claiming that “the real estate markets of the United States, Canada, Australia and other countries are very vulnerable to becoming hotbeds of international money laundering.”

One reason for such high-profile purchases may have been in response to Chinese dictator Xi Jingping’s “anti-corruption” purge of political rivals within the CCP, forcing many opponents of the Xi regime to seek shelter abroad.

There are some doubts whether the move to ban foreign buyers will have a meaningful impact on rising home prices in Canada, with Toronto-based Bullpen Research & Consulting’s Ben Myers noting the decline in foreign investment since 2020.

“It’s a pretty low number and let’s face it, the people who really want to buy … will find alternative ways to do it,” he told the BBC.

Still, the move by the Justin Trudeau government is intriguing, as the liberal leader previously expressed his admiration for China’s communist system.

However, the proposal may have been prompted by regional moves to fight Canadian home prices, as Ontario Premier Doug Ford – from the Progressive Conservative Party, which rivals Trudeau’s Liberals – announced plans to increase the tax on foreign buyers from 15 to 20 percent in the province for example.

Follow Kurt Zindulka on Twitter here @KurtZindulka

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