New York
CNN
 — 

Canada in 2023 is closing its doors to foreign investors who want to purchase homes.

A new Canadian law took effect January 1 that essentially bans foreign buyers from buying residential properties as investments for two years. The law was passed because of a spike in Canadian home prices since the start of the pandemic – and some politicians’ beliefs that foreign buyers were responsible by snapping up supply of homes as investments.

“The desirability of Canadian homes is attracting profiteers, wealthy corporations, and foreign investors,” said the campaign website of Prime Minister Justin Trudeau’s party this past year. “This is leading to a real problem of underused and vacant housing, rampant speculation, and skyrocketing prices. Homes are for people, not investors.”

The law provides exceptions for home purchases by immigrants and permanent residents of Canada who are not citizens.

But the steep rise in home prices in 2020 and 2021 was already reversed in 2022, well before the law took effect. Average home prices in Canada peaked just above $800,000 Canadian in February and have fallen steadily since then, dropping about 13% from that peak, according to the Canadian Real Estate Association.

The Bank of Canada has been raising interest rates, resulting in higher mortgage rates in the country – just like in the United States and other countries that have been hiking rates.

CREA’s price index is still up 38% from the end of 2019, before the pandemic, but the group said that inventory of homes for sales has returned to pre-pandemic levels.

The real estate association voiced concern about the law, even with the exemptions for people who intend to move to Canada.

“Canada has built a reputation as a multicultural nation that welcomes people from around the world. As currently proposed, the prohibition on the purchase of residential property by non-Canadians can impact our reputation as a welcoming nation,” said the group’s statement. “The potential benefits of the ban are likely to be modest.”

CREA also expressed concern that the ban could prompt retaliation by the United States and Mexico to prohibit purchases in those countries by Canadians, especially retirees looking for winter homes away from the Canadian winter.

“Canadians purchase vacation and residential properties in many countries, but particularly in the United States,” said the group.

CREA said Canadians are the largest foreign purchasers of American properties, with more than half of the properties purchased by Canadians in Florida and Arizona.

“These provide Canadians with a place to spend the winter months and are a form of savings for Canadian retirees,” said the group. “If Canada places a ban on Americans owning property in Canada, we should expect them to respond in kind.”