Developers push to end foreign buyer ban as condo supply piles up

One Marlborough, Dorsay Development Corp.’s project in Toronto’s Rosedale neighbourhood. The company says it may have to turn away foreign buyers if the ban isn’t lifted before the project markets this September. (Devron Developments and Dorsay Development Corp.)

The development industry is pushing for the end of the ban on foreign ownership of Canadian homes, as market conditions have changed since it was introduced in 2023.

The ban is set to expire in the new year unless it’s renewed. It was introduced by the federal government in response to unaffordable home prices, and concern that Canadians were competing with foreign investors and getting pushed out of their own market. Since then, condo prices have dropped and there is ample supply – possibly enough for foreign investors to snatch up some without boxing Canadians out.

Developers are having such a hard time getting rid of condo inventory that there is concern the market will hit a wall at the end of the decade, given the few new starts now. That’s when there could not be enough supply to meet growing demand from a rising Canadian population.

How much impact does the ban really have?

Toronto Realtor Tom Storey told Real Estate Magazine that allowing foreign buyers back into the market could make a difference, albeit a small one, in new condo construction sales. That could help some developers get their projects off the ground, whereas currently they’re having trouble meeting a 70 per cent sale threshold to get financing from banks.

Storey said the government is getting a lot of pressure from the development community to allow foreign buyers to participate again in the market so they can start building once more.

“Developers are lobbying openly to the government, saying, ‘Hey guys, we got leftover inventory, we can’t launch anything new, we’re stuck here,'” he said. “Developers are the ones pushing for (the ban to end).”

Still, Storey said removing the ban might not actually have that much of an impact, given foreign buyers only represented about five per cent of the market before the ban. Potential investors can also see that the pricing on new builds doesn’t make sense compared to resale, he said, so it’s not like they’re waiting on the sidelines, eager to get involved. And even if the ban was removed, there is still a 25 per cent tax on foreign purchases in B.C. and a 35 per cent tax in Ontario, which could discourage foreign buyers, according to Storey.

“Arguably, (the tax) is a bigger factor than the ban,” he said. “If the numbers don’t make sense, no one’s going to (buy) even if they’re allowed to do it.”

It’s about confidence, not volume

Corcoran Horizon Realty CEO Cliff Rego told REM that he was not dependent on foreign buyers in his business and it was a “very slim piece of the pie.” The issue lies more in what the ban does to market confidence and the stigma it creates towards participating in the Canadian market.

Instead, he’d like to see the ban end and for there to be more competition to get buyers off the sidelines. There could be some fear of missing out (FOMO) if potential buyers see that others think Canada is a good place to invest, and lower prices could attract investors beyond the borders. Rego thinks more involvement from foreign buyers could help clear away some inventory and help create movement toward more development.

“We shouldn’t have any restrictions right now,” Rego said. “We should have everything helping the market and the developers and the builders.”

A Rosedale project feeling the pinch

Ian McLeod, senior vice-president of Dorsay Development Corp, told REM that his company is concerned it will have to turn away foreign buyers interested in its new building, One Marlborough, in Toronto’s Rosedale neighbourhood. They will begin to market that project in September, but said they’d be much more confident if they knew they could market it to foreign buyers.

He said the ban is “problematic” in a weak market where every sale counts, and it impacts perception and confidence in the market, which can impede getting projects off the ground with lenders.

“The message we’re sending to foreign buyers is… that we don’t want their capital invested in Canada,” McLeod said. “It’s not a good message to be sending to the world.”

The ban does impact Dorsay’s decision-making, he said, such as whether to invest in new projects.

McLeod is advocating for the ban to be lifted on new units but not on resale, to lessen the competition for first-time homebuyers. That’s what Australia has done, and could mark a middle ground for the ban.

“Canada and the City of Toronto are seen as very safe and stable places to put capital and invest in the community,” he said. “Canada has a very, very broad appeal globally.”

The post Developers push to end foreign buyer ban as condo supply piles up appeared first on REM.