There is a greater effort being made to more accurately measure the level of foreign investment in Canadian real estate and its impact. Based on the latest CMHC reports, we anticipate your questions about foreign ownership in your rental market.
Where do non-residents invest?
According to the CMHC and Statistics Canada, Vancouver has the highest share of non-resident ownership in its real estate market: 7.6%. Toronto follows closely behind with 4.9%. That includes foreign investors but also Canadian nationals living abroad. Non-residents invest heavily in condos, especially newer apartments.
Foreign investors, of which almost half are from Asia (mainly China), tend to buy upscale homes. For example, Chinese market share in the affluent Montreal neighborhood called Mont-Royal jumped from 8% to 18% in 2017. In Vancouver, the average value of residential properties bought by non-residents is 30 to 45% higher than those resident-owned.
This is likely what led to the implementation of a 15% foreign buyers tax in Vancouver and Toronto.
What’s the real effect of the 15% tax?
When Vancouver and Toronto adopted their foreign buyers tax (respectively during the summer of 2016 and in April 2017), the idea was to limit the speculation on house prices. Now, the Quebec government has expressed interest in assessing the real estate transactions made by non-Canadian residents. Is the first step towards introducing a similar tax, as the mayor of Montreal has suggested in the past?
However, the effect of both taxes has been very limited. Shortly after implementation, prices started to increase again. It seems, foreign investment may not be as important a factor to the real estate price increases that some people fear and that other drivers, such as excessive mortgage credit from banks and less-regulated non-bank lenders have more impact on the housing prices than foreign investment.
Is Montreal the new hot destination for foreign investors?
While only 1.5% of Montreal residential properties are owned by non-residents, the CMHC has noticed a 37% growth in the foreign buyer segment in 2017. This is mainly thanks to Chinese investors. They represent the most dynamic segment of buyers (3 times more than in 2016) and are catching up with French investors, totaling 20% of the market share each. Americans are still the biggest real estate foreign buyers in the city, accounting for 25%. This sudden growth of Chinese interest in Montreal could be explained by the 15% tax, relatively cheap housing prices compared to Vancouver and Toronto, combined with the strong economy.
Are non-residents investing to rent out?
According to another CMHC report, Toronto is the rental market that attracts the most foreign investors in Canada. 4.4% of the purpose-built rental apartments are owned by non-residents in Toronto versus 3.8% in Sherbrooke or 3.4% in Edmonton. It might come to a surprise that Vancouver lands in 4th place with only 3.2% of its purpose-built rental units owned by foreign residents. Understanding the dynamics of your rental market can help you make important decisions such as investing in a new income property, selling or renovating your rental unit, so learn more about yours here.
It’s often difficult for non-residents to find rental insurance to protect their residential investment because non-specialized insurers aren’t comfortable with the increased exposure of an absentee landlord. APRIL welcomes all landlords, including non-residents and foreign investors.