Foreign buyers are driving up home prices in Canada's expensive residential markets. Trends indicate that luxury properties in Toronto and Vancouver are being snapped up quickly by buyers based out of the country. Chinese investors, in particular, seem to have set their sights on Canadian real estate. A report by the Canadian Imperial Bank of Commerce (CIBC) predicts a greater flow of foreign money into the country's property markets.
The speculative nature of real estate investment by foreign buyers has become a hot topic of discussion. An unstable Chinese economy and the falling Canadian dollar – which is on its longest losing streak since the 70s – is amplifying the concern.
It is a concern that the United Kingdom, New Zealand and Australia also share, and they have taken steps to control foreign ownership. The UK enforces a capital gains tax of up to 28 per cent. New Zealand requires foreign buyers to pay capital gains tax if they flip a property within two years.
Australia limits the type of properties foreign investors can buy, mostly allowing access to newly constructed apartments and houses for personal use only. This has led to a fall in the number of foreign buyers from 16 per cent in Q3 2015 to 12 per cent currently. Note that, in Australia, the state maintains records on property acquisition by foreign buyers and publishes reports.
Credit Suisse reports that foreigners make up just 15 per cent of new home buyers in Australia. Some academics specializing in housing say that home prices are largely being driven up by domestic investors.
Back home, there isn't enough data on foreign owners to conduct an objective assessment about their impact on home prices. The Canada Mortgage and Housing Corp (CMHC) pegs the percentage of foreign buyers in Vancouver and Toronto at 3.5 per cent and 3.3 per cent respectively.
Prime Minister Justin Trudeau understand the lack of numbers, and believes that restrictive measures could devalue the equity people have built up in their homes. The CIBC report, however, calls for a tax on flipping by foreign investors to counter speculative risk.