Canada has become the most recent country to impose restrictions on non-residents buying real estate, arguing that wealthy investors from other countries are pricing out would-be local homeowners. But is singling out foreigners the best way to face a troubled housing market?
PARIS — It’s easy to forget that soon after the outbreak of COVID-19, many real estate experts were forecasting that housing prices could face a once-in-generation drop. The logic was that a shrinking pandemic economy would combine with people moving out of cities to push costs down in a lasting way.
Ultimately, in most places, the opposite has happened. Home prices in the U.S., Canada, Britain, Germany, Australia and New Zealand rose between 25% and 50% since the outbreak of COVID-19.
This explosion was driven by a number of factors, including low interest rates, supply chain issues in construction and shortages in available properties caused in part by investors buying up large swathes of housing stock.
Yet some see another culprit deserving of particular attention: foreign buyers.
Governments around the world are increasingly intervening in a bid to push down prices by limiting access to buy real estate to only residents. Canada made headlines recently as it introduced a two-year ban on non-resident foreigners from buying homes in the country.
Soaring housing costs in Canada
Non-citizens can still buy property if they live in Canada, as can refugees and some international students. It’s an issue that may shuffle the usual ideological lines, as the “foreigners” being shut out are often wealthy investors having a negative economic impact on struggling locals.
Canada’s liberal Prime Minister Justin Trudeau has argued that placing limits on foreign buyers is not about shutting out individuals: “The desirability of Canadian homes is attracting profiteers, wealthy corporations, and foreign investors,” Trudea’s Liberal Party promised before the last Canadian election. “This is leading to a real problem of underused and vacant housing, rampant speculation, and skyrocketing prices. Homes are for people, not investors.
"The cost of buying a home has exploded in Canada — when Trudeau announced the plan in 2022, prices were up by more than 27% compared to the previous year.
“So many new homes are being looked at as assets, as investments — as opposed to places to raise families and create communities,” Trudeau said at the time.
The Globe and Mail reports that in Vancouver, on the west coast of Canada, many local politicians have called for a ban on non-resident buyers for years, hoping to stem the “flipping” of properties and deflate the city's overpriced housing market.
For more than a decade, the city has been consistently ranked one of the most unaffordable places to live anywhere in the world. In the 2010s, a tear-down home in the Vancouver area cost at least half a million Canadian dollars — a bargain compared to the average price of $1.9 million for a detached home in 2022.
The mangroves along the Tapi River in Surat Thani, Thailand
Realtors say it's politics
But not everyone agrees with the new policy — notably, realtors, who claim that foreign ownership is not a significant factor in Canada’s sky-high home prices.
Brendon Ogmundson, chief economist at the British Columbia Real Estate Association, told Le Monde that he believes the ban is “very much a political policy, more than an economic policy,” which will eventually hurt the housing market.
But when British Columbia introduced its own tax on non-residents buying homes in 2016, the number of foreign buyers plummeted from 13.2% of sales before the tax to 2.5% three years later — a move that appeared to cool the market, at least temporarily.
In 2020, non-resident foreigners owned 3.4% of homes in Ontario, and 4.7% in British Columbia — with the highest rate in the city of Vancouver at 6.2%, according to data from the Canadian government.
Countries with more people owning homes tend to exhibit lower wealth inequality.
In the province of Ontario, the government says that number has dropped since the province introduced a tax on non-residents buying homes in 2017.
According to the OECD, homeownership has a wealth-equalizing effect, as countries with more people owning homes tend to exhibit lower wealth inequality.
As the global wealth gap widens and affordable housing becomes a mirage in many cities, and even entire countries, how will a ban on non-resident home buying affect the housing market? Is the move to crack down on foreign ownership as radical as it seems?
Though each housing market has its own particularities, a similar dynamic is playing out in countries around the world, with governments imposing restrictions or outright bans on foreigners buying real estate.
A man rides a bicycle at Mission Bay in Auckland, New Zealand
How have other countries dealt with non-resident buyers?
Southeast Asia has been at the forefront of implementing such laws, with foreigners restricted from owning land or certain kinds of property in many countries in the region.
In Singapore, for example, foreigners need to be a legal resident for at least five years before being able to purchase a house. They are forbidden completely from purchasing Housing and Development Board apartments, which are affordable apartments subsidised by the government.
Cambodia’s constitution forbids foreigners from land ownership, but there are ways around the restriction.
Thailand traditionally had a ban on foreigners owning land, which made it almost impossible for them to purchase it property unless it was through local companies. However, the government approved legislation at the end of last year to allow wealthy foreigners to purchase houses and land as it seeks to attract investors and digital nomads. Foreigners can now purchase property if they show an investment of 40 million baht ($1.2 million).
Similarly, Indonesia has also moved to overturn a ban on foreigners owning housing units in the country.
Many parts of Europe now restrict non-resident buyers
There are examples in Europe as well. In Spain, the tourist hotspot of the Balearic Islands is pushing ahead with plans to ban non-residents from buying property. The islands are the most expensive place to buy property in Spain, even more so than the capital Madrid.
The sale of properties to non-resident foreigners in Spain is soaring, with the latest figures showing a 30.65% increase in the third quarter of 2022 compared to the same period in 2021. Local politicians argue that foreign buyers — who can afford to pay higher prices than many locals — are driving up prices and creating “ghost villages.”
Non-EU citizens need a permit to buy property, regardless of how long they have lived there.
Buying property in many parts of Austria is also more complicated for non-EU nationals and residents, who have to request permission from local authorities and satisfy a range of conditions — and pay additional taxes and fees.
Switzerland has had similar but more restrictive regulations since the 1960s, which largely prevent non-resident foreigners and non-EU citizens living in Switzerland without a long-term permit from buying residential property.
Denmark also bars non-residents from buying homes, while in Malta, people who have lived in the country for fewer than five years — including Maltese citizens — are not allowed to buy more than one home. Non-EU citizens need a permit to buy property in much of the country, regardless of how long they have lived there.
And in the Alto Adige region of Italy, foreigners and Italians from outside the region have been banned from buying vacation homes in some towns since 2018, with government officials arguing that the restrictions were needed to prevent wealthy foreign buyers from pricing locals out of the market. After a court challenge, the European Commission confirmed the ban is a legal exception to EU regulations.
Attracted not just by Italy itself, but also the country’s relatively cheap real estate prices, foreign buyers have snatched up properties there, making it the top foreign choice for North American and UK residents buying second homes, according to a Sep. 2021 survey.
Sunset in Vancouver's downtown
Driving demand away
Meanwhile, there are fears in Australia that foreign buyers will shift their focus there now that Canada’s ban has come into place. Australia is struggling with its own housing crisis and there are already calls for the country to follow Canada’s lead.
In neighboring New Zealand, a ban similar to Canada’s has been in place since 2018, after the government blamed wealthy foreigners for driving up prices. Overseas buyers at the time accounted for 22% of housing sales in central Auckland.
It may take time for the impact of restrictions like Canada’s to become clear. Some have argued the ban, which sets a maximum $10,000 fine and exempts some short-term residents and those who live in apartment buildings, doesn’t go far enough.