Canadian flag and residential buildings

Canadian Government Amends Prohibition on Residential Property Purchase by Non-Canadians

The Canadian government enacted legislation on Jan. 1, 2023, that disrupted commercial and residential real estate development across the country. The Prohibition on the Purchase of Residential Property by Non-Canadian Act (the “Act”)  was originally intended to be a demand-side solution to make housing more affordable for Canadians by prohibiting residential purchases by non-Canadians over the next two years. However, the regulations under the Act, released only a week before enactment, unintentionally halted commercial investment in current and future residential and mixed-use projects in major metro areas.

The NAIOP Research Foundation issued a report last August highlighting the importance and contributions of commercial real estate to the Canadian economy. The report, specifically, found that the industry generated the following economic benefits in 2021:

  • Generated $148.4 billion in net contribution to GDP.
  • Created and supported 1.0 million jobs, of which 372,710 are direct jobs.
  • Generated $67.5 billion in labour income for workers.

Essentially, the elements of the regulations that posed the greatest concern were:

  1. The foreign control threshold for determining whether an entity is non-Canadian at 3%, for direct and indirect interests in real property;
  2. Any entity in the real estate investment and development space with any foreign financial backing per the point above could not purchase residential or mixed-use sites to develop new housing (which is virtually most investment opportunities);
  3. The Act had implications on the sell side as well. The pool of buyers for any property with underlying residential zoning permissions was limited to persons/entities subject to point number one above. 

A significant cross section of industry players were affected, including real estate investment trusts (REITs), which provide important residential opportunities for Canadians to purchase affordable houses, limited partnerships and trusts, funds and privately owned companies.

The four NAIOP chapters in Canada – Calgary, Edmonton, Greater Toronto, and Vancouver – took action, along with other real estate advocacy organizations such as the Canadian Home Builders Association, BILD and REALpac, to engage the federal government in addressing the unintended and adverse impact of the Act’s regulations. A joint letter was submitted to Canadian Finance Minister Chrystia Freeland that outlined the nationwide “cooling effect” of the Act’s implementation on the residential development and investment side of the housing market. It called for the federal government to provide more clarity and consider revisions to the Act, including the corporate barrier of entities with more than 3% foreign ownership.

The federal government responded to the concerns from the real estate community. The Honourable Ahmed Hussen, Minister of Housing and Diversity and Inclusion, announced positive amendments and exceptions to the Act on March 27. The Act will now allow non-Canadians to purchase residential and mixed-use property as long as they are a company active in development. 

The NAIOP letter to the finance minister on the unintended and adverse impact of the Act was part of a new initiative to strengthen the collaboration between the four Canadian chapters on policy issues. The Canadian National Advisory Task Force was established earlier this year to provide an informal platform for representatives from each chapter to share and exchange policy initiatives that impact NAIOP and the commercial real estate development industry. Task force meetings are opportunities for the NAIOP chapters to remain informed and educated on policy trends in different parts of Canada at each level of government. It was also created in recognition of the unique conditions and policies that affect Canada very differently than in the U.S. context. 

Policymakers across Canada will continue to debate and discuss initiatives of importance to NAIOP and the commercial real estate development industry. Each chapter recognizes the importance of remaining engaged in the legislative process to ensure that the interests of commercial development are heard and seriously considered.

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