Everything foreign buyers need to know to succeed in the Canadian real estate market Toronto is one of the hottest real estate markets in North America and it’s attracting the attention of many foreign buyers looking for investment opportunities. Buying real estate in Canada as a foreigner presents unique challenges and there are a lot of things that you need to be aware of as you work towards homeownership in Canada.
In this article, we will go over everything a foreign investor needs to know before they get into the Toronto real estate market.
Topics covered include:
- Can foreigners buy property in Canada?
- Why invest in Toronto
- What special rules or taxes apply?
- Financing and mortgage opportunities for foreign investors
- Putting your property up for rent
- Finding the best residential properties for you
- Advice for foreigners moving to Canada
Can foreign investors buy property in Toronto?
There are no laws preventing non-resident ownership of real estate in Toronto (or in Canada). If you have the means, you can begin buying property in the country immediately. However, just because it’s legal does not mean foreign investment will always be easy, but with the right information and assistance, the process can be a breeze.
Canada recently had a federal election, with parties promising a proposed ban on foreign home sales for at least two years to combat the housing crisis. As of yet, the Canadian Government has not instituted a ban.
Why invest in Toronto in the first place?
Toronto is one of Canada's hottest real estate markets. The city is the country's largest and fastest-growing. Toronto has become a major North American hub for industry, as well as enjoying a rich local culture.
The city is famously international, featuring thriving communities of numerous nationalities and ethnic groups, as well as many foreign students. Foreign buyers account for a significant number of sales in Toronto, so you will be able to find quality advice when looking into this market.
The city offers many different opportunities for investment from condos and townhouses to detached homes or luxury homes.
The real estate market in Toronto is hot right now, with the previous few years seeing double-digit increases in housing prices. The average price of a home in Toronto is now over $1,000,000 and is predicted to continue rising. Additionally, Canada currently has very low-interest rates on mortgages.
Additional taxes for foreign buyers
Foreign Buyers Tax
One thing to know as a foreign buyer is that you will be subject to a Foreign Buyers Tax, referred to as the Non‑Resident Speculation Tax (NRST). This 15% tax is applied to any residential real estate bought within the Golden Horseshoe region by non-permanent residents or foreign corporations.
Alas, there is some good news if you plan to live on your property and seek permanent residence in Canada. Those who acquire permanent resident status within four years of paying the tax are able to apply for a government rebate.
For more information on the NSRT and rebate opportunities, see the Government of Ontario’s web page on the topic.
Vacant Home Tax
Another tax you may be subject to is the Vacant Home Tax. This tax is applicable to any home that is not your principal residence and has been vacant for more than six months in a year. The purpose of this tax is to combat supply issues by encouraging vacant homes to be either used, rented or sold.
For non-residents who own a home in Canada but live elsewhere most of the time, you could be on the hook for this tax. The Vacant Home Tax is relatively new, only being created in 2021. The tax will likely cost up to 1% of your home's current assessed value.
The property buying process
So you have decided you want to get into the Toronto real estate market. Now begins the hard work of taking that desire all the way to a sale.
Finding financing, paying down payments and a mortgage
While a foreign investor can expect to pay similar interest rates to a domestic buyer, the amount of money required for your down payment may be significantly higher.
For non-U.S. or Canadian-based buyers, expect to pay at least 35% down on your property. This money can not come as a gift from another person or entity. American-based buyers can pay as low as 20% in special cases.
Once you have secured financing, foreigners have much the same options for mortgage products and interest rates as Canadian citizens. However, you may be subject to some premiums and extra restrictions enforced by your lender.
What documentation is needed for foreign investors?
Non-residents will need to supply lenders with some personal information and documentation in order to secure mortgage financing in Canada, including:
- Proof of income
- Proof of down payment
- A reference letter from a non-Canadian bank
- Credit report from an international bureau or six months worth of bank statements
Can I rent out my Canadian investment property?
Foreign property owners are welcome to rent their properties in Canada. If you choose to do this, be sure to make note of important tax considerations. A foreign property holder is subject to a 25% tax on gross rent income. In addition, should you choose to file for Canadian taxes and receive deductions, you will need to fill out an NR6 form to claim rental income as a non-resident.
If you plan on renting your property remotely, we recommend employing a property management company in Canada. A property management company can take care of any issues that arise for your property or tenants while you are out of the country.
Finding the right property for your investment
Finding the right property for you will depend on a few factors. The biggest factors will be how much you can afford and what you plan to use the property for.
The average price for units will vary greatly depending on where you want to buy in Toronto especially. If you are looking for a place to live with a family, consider a house farther away from the bustling city. If you are looking for a high-earning rental property, consider condos that are closer to downtown or universities.
There is currently a very low housing supply and high competition among homebuyers in Ontario, so be prepared to shop around for a few properties before you buy one. You may be required to pay a higher purchase price than you expected in order to clinch a bidding war.
Throughout the process of finding and purchasing a home, we recommend consulting the services of a real estate agent or broker. A Toronto realtor will have the best expert advice and knowledge of the city to help you make the right choice. They can also, along with a real estate lawyer, assist you in navigating the legal processes required to close on your property.
Closing your property sale and final closing costs
Once you have found a property and had your offer accepted, there are a few steps before you can take possession. Your realtor will help you through these final few steps. Remember that in order to finalize and sign mortgage documents, you will need to be present in Canada.
Also, remember that there are various additional fees to keep in mind that can add to your purchase price. These include land transfer tax, both for Ontario and Toronto, as well as the NRST mentioned above, building fees, and home inspection fees.
Finally, there are recurring fees associated with property ownership in Toronto such as property taxes and utility bills. Property taxes will vary across Canada, but luckily major cities like Toronto or Metro Vancouver tend to have the lowest rates.
What if I want to move to Canada?
One very popular reason for foreign investors to buy in Canada is with the ultimate goal of living full-time in the country. Unfortunately owning property in Canada does not provide you with any special privileges when it comes to applying for immigration.
A non-resident may attain permanent resident status in Canada, allowing them many of the same rights as a Canadian citizen. This process can take a few years to complete and is the first step towards citizenship.
Overall, Toronto is a popular market for foreign investors for a reason and is a great choice if you want to invest in Canadian real estate.