07/09/22

CANADA: Offshore single-family rental REITs sidelined.

As published on reminetwork.com, Wednesday 7 September, 2022.

Canada will become a temporary no-go zone for offshore single-family rental REITs on January 1, 2023, when a two-year ban on foreign investors acquiring single residential dwellings, duplexes or triplexes is set to begin. The federal government is currently seeking public input on some of the allowed exemptions and enforcement details for the enabling legislation before the final regulations are published later this fall.

The Prohibition on the Purchase of Residential Property by Non-Canadians Act, which was passed in the House of Commons in late June, generally stipulates that only Canadian citizens, permanent residents, refugees deemed “protected persons” and Indigenous people with Section 35 rights under the Constitution Act will be able to purchase homes or vacant land zoned for residential uses during the hiatus period. Nor can non-resident investors acquire the prescribed properties through business entities incorporated in Canada unless they are publicly traded on a Canadian exchange.

However, international students and foreign nationals with work permits in Canada could qualify if they meet established criteria. Foreign nationals attached to other countries’ embassies and consular offices would additionally be exempt from the prohibition.

Real estate agents and related parties will have a duty to inform prospective clients of the prohibition. Ineligible purchasers and service providers assisting them will be subject to maximum fines of $10,000 for illicit transaction activities during the two-year period. The Act also gives Courts the authority to order the sale of properties, from which owners could receive no more than the original purchase price after other costs of the required proceedings had been recouped.

As proposed, international students enrolled in an authorized institution could purchase a residential dwelling with a maximum value of $500,000 if they are eligible for a work permit and have filed tax returns and spent a minimum of 275 days annually in Canada during the five years preceding the purchase. Foreign nationals could purchase a dwelling if they hold a valid work permit, have worked in Canada for a minimum continuous period of three years and filed income tax in three of four years preceding the purchase.

The government’s consultation document notes that both groups are considered likely to pursue permanent residency and have already contributed to society and the economy through their professional/technical output or amplified tuition that “supports and enriches Canadian learning institutions”. Similarly, the prohibition will not apply on recreational properties located outside the boundaries of cities and towns where such investment “plays an important role in supporting local economies and maintaining cross-border ties”.

The public can submit comments until September 16, 2022.