Could a Canadian lender follow this bank’s lead and exclude foreign buyers?

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An Australian bank has said it will no longer finance foreign-purchased homes, but such an initiative here would be un-Canadian, according to one leading broker.

“I would say it’s not true to Canadian values to exclude anybody. We tend to welcome people to our country. This is more a case of welcoming their money and not them,” Dustan Woodhouse, a broker with Dominion Lending Centres Canadian Mortgage Experts, told “And that’s a finer distinction to make. It’s a slippery slope: You start excluding one group, what’s the next step?”

Australian-based bank Westpac announced it will no longer loan money to foreigners purchasing residential property.

As of April 26, the bank and its subsidiaries no longer lends to non-residents and temporary visa holders. Westpac is the third major Aussie bank to make the move, following announcements from competitors ANZ and Commonwealth Bank earlier this month.

Much has been made about the influence foreign money is having on Canadian real estate prices, and many may argue a similar ploy would help to naturally cool the red-hot market.

However, Woodhouse argues a similar clampdown would have very little impact.

“The bottom line … in my professional experience is the majority of foreign buyers don’t require financing,” Woodhouse said. “Much like the Canadians who bought up a massive part of Arizona. Any Canadian who thinks foreign buyers should be cut out hopefully (haven't) bought a property in the U.S.”

The Canada Mortgage and Housing Corporation recently released a report on foreign ownership that estimated the influence of foreign money on two of the country’s hottest housing markets.

The report found that foreign ownership is most prevalent in new condo buildings in Toronto and Vancouver.

In Toronto about 10% of newer buildings (built after 2010), compared to 2% of those buildings built in the 1990s.

A similar trend was found in Vancouver, where 6% of units in newer buildings are believed to be foreign-owned.
  • Dave on 2016-04-29 9:52:00 AM

    Should be the government stopping all non resident purchases.

  • Evan on 2016-04-29 10:33:16 AM

    I do not think that there is any value at all to someone buying a home, cash purchase or not, to the Canadian Economy. They buy a home, and then contribute what? Annual property taxes... that's it.

    In many cases these homes are occupied by seniors, students, and people who are not working. They declare no income in Canada and collect social benefits like Child tax Benefits, welfare and OAS. They do NOT contribute to our society, but are rather a drain on it.

    In Vancouver, Shaunessy (with some of the most expensive homes in Canada) has a similar degree of welfare claims as the Downtown East Side - the poorest postal code in the country. It is, frankly, disgusting.

    I say that ALL foreign ownership should come with a very hefty tax assessment. You don't pay income tax here, no problem... but you will pay a very large tax bill.

    Also, Dustin is wrong... they may do the original purchase with cash, but most of them turn around and leverage the home later. With really low interest rates, they can invest their $ and easily manage the payment. They also use it to launder the $.

    Foreign investors should have to pay posted rates, so if you are a resident who declares income - you get 2.5% - not a resident who declares income in Canada? You pay at least 6%.

  • Dale Bilton on 2016-04-29 10:46:46 AM

    Agree with Dustin Woodhouse's comments.

  • BJ on 2016-04-29 11:13:03 AM

    I agree with Even. The data on foreign ownership is inaccurate. The buyer (on title) may technically not be foreign, but the money to buy the house is (a lot more than the 6% in Vancouver as quoted). I still can't believe that it has taken so long for the government to FINALLY collect accurate data. The $500K allotted to do so isn't much, but its a start I guess. The irony is that our "Canadian way" of inclusion may ultimately cost us our Canadian identity down the road. Dustin is right about foreign buyers paying cash - how can the average Canadian compete with that when the buyer doesn't really care what the property costs - all they want to do is get in the Canadian market. The long-term effects of this "inclusion" are going to be dire - if they aren't already so.

  • Ron Butler on 2016-04-29 11:44:28 AM

    This is a highly nuanced issue. Any foreign investment has a positive impact on the Canadian economy, even cash purchases of homes. So the concept of banning those purchases if foolish.

    I do not agree that all foreign investment is largely cash, there is a huge amount of off shore down payment that occurs in the GTA, the down payment is from overseas and the home buyers are Canadian citizens or Permanent Residents. Billions worth of those type of mortgaged property purchases happen every month in Ontario. That is a fact.

    The issue boils down to market price distortion. If you have lived in a neighborhood from birth you are going to think about why you can no longer ever hope to buy a home there. I am not saying right or wrong, I am saying if you are that person it is human nature to have certain feelings about it.

    Finally, you are never going to have accurate data. The Canadian son or daughter of a wealthy overseas person buys 12 shoe box condos, some with mortgages, some with cash, some from the SLOC on the huge owner occupied property they bought for cash 10 years ago and it has massively appreciated in value. None of that could be classed as foreign ownership.

  • BJ on 2016-04-29 12:17:59 PM

    mortgage or no mortgage isn't really relevant. Most major banks will give mortgages to foreign buyers at 65% LTV without any questions. This is at the BRANCH level, not through the broker channel.

  • David on 2016-04-30 3:47:42 AM

    I do not see any points to refuse foreign buyers.

    We are an immigrant country, people from all over the world, they might have close family members who are non Canadians, what's wrong for them to buy a condo for vacation ?

    Do not try to "regulate" the market, no one can do that. Even the China Govt cannot regulate their property market.

    Please also looked at the history of Hong Kong in 1997, property market slump by 70%, can you imagine what would happen ?

  • Paul Therien - CENTUM on 2016-05-02 10:24:15 AM

    Ron is correct that this is a nuanced issue. Foreign investment, it could be argued, saved our skin in 2008-09 and has helped to keep our economic outlook relatively bright when compared to the rest of the world. In addition, the property market accounts for a very significant portion of our overall GDP. It employs a very large percentage of our population and in turn that does drive economic stability.

    I would however caution that all foreign investment is not the same. Cash purchase or not, a vacant property does not mean an equal added economic contribution to our society.

    Since 2010 other countries around the world have taken measures to curtail or better capitalize on foreign investment in an effort to control grossly escalating property markets. Denmark, Sweden, Australia, and even the USA as just a few examples have introduced tax levies for non residents. The reasoning behind this is simple - if you are going to own a home in our country, you are going to contribute fiscally to our country. Rather than collapse their housing markets, it has created a more level playing field and has done nothing to bring about the economic ruin that the naysayers claimed it would.

    In BC it has been estimated that roughly 60-80 billion dollars entered the country illegally last year. The majority of it (over 60%) from China. Of the money that entered, most of it went into the purchase of property.

    On the surface, to some, a foreign investor buying up property may not seem to be a huge economic drain outside of escalating property valuations. It is the dark underbelly that creates some consternation for many people.

    There are several examples of websites in foreign countries that encourage immigration to Canada. Vancouver and Toronto in particular. These sites not only encourage investment in Canada, but promote the value of sending your children, wives and seniors here. They extol the virtues of what is called "milk gold" (child tax benefits), and how easy it is to obtain welfare. They outline in detail how much cheaper it is to send seniors to Canada as opposed to caring for them at home. Or the low cost of education and the ease to get citizenship and how to not declare income here so that you can get "free" money.

    I myself, when I first heard of such sites, thought that they would be hidden from view, but when I investigated... some of them receive over 2 million visits per month.

    I am all for immigration, this country was built on it. All of us, unless we are First Nations, are immigrants - it does not matter if we arrived yesterday or like my father's family in the early 1600's. I am however a strong advocate for the thought that if people are wanting to come to Canada, contribute to our country.

    If a foreigner wishes to purchase a property here as an investment, then fine. But like other coutnries is there harm in levying a tax on this? In some of the US states there is an additional property tax levy, in other countries they have restrictions about how many you can own if you are not a resident. Some levy "minimum" income tax contributions, etc. In countries where they have extensive social programs they restrict the ability to collect welfare, tax benefits etc. to people who are citizens, or permanent residents. Are these options that we should consider?

    The other issue at hand for me is that all wells eventually run dry. There is no reason under the sun to think that the influx of foreign money will eventually not do the same. What happens if China experiences a collapse and people need to pull their money out of Canada?

    It's a complicated situation. We need foreign investment in Canada to grow and we need immigration. Our birth rate is too low for naturalized Canadian families to build our population.

    I don't have the answers, but I can tell you that it is the number one topic I am asked about by family, friends, and when I attend networking events. People are angry/shocked/scared/worried about the whole situation. They all ask the same question... when is the sky going to fall? Not if, but when.

    When it is naysayer and doomsday profits, it is one thing. When it is the average Joe on the street... it means that consumer confidence in the property market is eroding. That is definitely not good - for any of us.

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