Real estate rules don't discriminate against foreigners

Last week's$1-million saleof a modest bungalow in north Torontoto a university student from China got tongues wagging and tempers flaring about the supposed encroachment of foreign buyers into the Canadian real estate market.

Stories ofwealthy foreigners snapping up properties and pricing Canadians out of their local real estate markets abound. Whether it bevacationing Britons buyingquaint cottages on the coast ofNewfoundland or Hong Kong tycoonscornering the condominium marketin downtown Vancouver, foreign real estate investorsseem to bethe new bogeyman of homebuyers across the country.

Just how pervasive foreign ownership of Canadianreal estateis, however,ishard to establishsince neither the government nor the real estate industry collects official data on the subject and buyers often use local proxies.Informal pollsofrealtors in Metro Vancouver and the Greater Toronto Area byindustry associations and the mediahave reportedfigures as varied as 3.5 per cent and20 per centfor the percentage of housing sales that involve buyers from outside Canada.

Canada has few restrictions on foreign ownership of real estate, and what limits do exist are at the provincial level and mostly pertain to agricultural land.

Larger down payments

Foreigners who plan on spending less than six months a yearin Canada can keep a home here without having to apply for residency. Those who buy a property and plan onliving in it longer than that have to immigrate to the country and apply for permanent residency.

If they rent outtheir property, they don't have to live here at all but do pay a 25 per cent withholdingtax on rental income that, unlike for Canadianpropertyowners, isusually taken off the monthly rent.

Homebuyers from abroad are subject to all the same fees and taxesas Canadians when purchasing real estate although they can face higher property or land transfer taxes in some jurisdictions and are subject to different capital gains tax rules when they sell a property.

If they take out a mortgage on their property, theyhave to do so at a Canadian bank and will usually be asked to put up a larger percentage of the purchase price as a down payment than permanent residents typically, 35 per centversusthefive or 10 per cent that is more common for Canadian residents.

Most provinces treat foreign homebuyers the same as local residents. One exception is P.E.I., which imposeshigherproperty taxeson anyone who isnot a resident of the island not just foreigners andforbids them from owningmore than five acres of land or 50 metres of waterfront without special permission from the Island Regulatory and Appeals Commission.

Global land grab

Internationally, some of the most heated debate around foreign ownership of real estate in recent yearshas had to donot with urban or oceanfront properties but with farmland. The globalland grab, as it's sometimes called, has seen governments and multinational agribusinesses from China, Saudi Arabia, India and elsewhere quietly buying up arableland across the African continent andin countries asfar flung asIndonesia, Australia and Argentina.

In Canada, several provinces have protections in place limiting the amount ofagricultural land foreigners can buy.

• Albertalimits non-residentsto two plots of agriculturalor recreationalland not exceeding a total of 20 acres.
• Saskatchewanrestricts saleof agricultural land to foreigners to 10 acres.
• Manitobaprevents non-residentsfrom owning more than 40 acres of farmland and requires that they move to the province within two years of purchasing the land.
• Quebecdoesn't allow non-residents to purchase farmlandat all without permission from the Commission de protection du territoire agricole du Qubec. Anon-residentis anyone who has lived in the province for less than 366 days within the 24 months preceding a real estatetransaction.

Canada's open-door policy is comparable to the approach to foreign property ownership in other countries, including the U.S., Germany, France and the U.K.

There are some jurisdictions, however, that have taken steps to restrict foreign investment in real estate beyond simply imposing higher taxes on homebuyers from abroad.

Australia

The country recentlytightened its lawsafter a brief period of opening up real estate to foreigners during the economic crash. It reintroduced restrictions on ownershipin 2010 aftera surge in property pricesmade housing increasingly unaffordable, especially in major cities like Sydney and Melbourne. (In 2010, asurvey of housing marketsin Australia, the U.S., Canada, the U.K., New Zealand and Ireland ranked Australia's housing marketas the least affordable.)

Today, the following restrictions apply to foreigners:

• Foreigners regardless of whether they are temporary residents of Australia or live abroad are prohibited from buying existing housing stock (homes that have been previously owned or occupied for more than 12 months) for investment purposes i.e. as a rental or vacation property.
• The exception to the above rule is if a foreigner buys existinghousing stock that they plan to demolish and redevelop. The property must be redeveloped within two years, andthe redevelopment mustincrease the number of housing units. The property cannot be rented out prior to the redevelopment. The new property can be rented out, sold or used by the owner.
• Foreigners temporarily residing in Australiacan apply to buy one piece of existing property to use as a residence provided they sell it when they leave Australia. This provision was meant to address complaints that Asian investors buying property for children studying in Australia were outbidding locals and holding onto property after their children left the country. These are some of the same complaints being raised currently in Canada.
• If foreigners buy vacant land for residential development, they have to build on it within two years and are allowed to rent out, use or sell thebuilt properties.
• There is no limit to the amount of newly constructed real estate foreigners can ownas long as the property has not been marketed exclusively to foreigners overseas.Such property can be used as an investment.

Switzerland

Swiss real estate is some of themost covetedin the world, but the country also has some of thestrictest ruleswhen it comes to foreign ownership.

• The government assigns annual quotas to the country's cantonslimiting the number of houses or flatsthat can be sold to foreigners who do not reside in Switzerland. Each sale must still be authorized by the canton in which the property is located,and the cantons can set their ownadditional restrictions.Many limit foreign property sales to tourist regions, for example, or allow foreigners to purchase only property thatis already foreign-owned.
• Foreigners can buy only one property to be used as aholiday home or a secondary residence. They cannot purchase a property for the sole purpose ofrenting it out, although holiday homes can be rented out periodicallyon a short-term basis.

• Property owners need specialauthorization if thesurface area of their real estateexceeds 1,000 square metres.
• In some cantons, foreigners are barred from selling their propertyfor a certain number of years after purchasing it generally between five and10 years.
• If foreigners buy vacant land, theymust build on it within a year.
• Foreigners who live in Switzerland do not need to get prior authorization to purchasereal estate that will serve as theirmainresidence and can rent out the property or use it as a holiday home if they move to another part of the country.
• One area that is exempt from restrictions on foreign ownershipof property is the alpine skiresort town Andermatt, where luxury condominiumsmarketed to wealthyforeigners as vacation properties cansell for several million dollars.
• Foreign nationals from EU members states and some other European countries who want to buy property do not require the same type of prior authorization as other foreigners.

China

China imposednew restrictionson property salesin 2010 for locals as well as foreigners in order to curb rising prices and real estate speculation. It raised down payments, tightenedmortgage rules, introduced property taxes in several jurisdictions where they did not exist andput in place new limits on ownership.

• Foreigners can own only one residential property for their own use (permanent residents are restricted to two properties).
• Foreigners mustreside in the country for one year before they can buy property.
• Foreign companies who buy commercial real estate must use it themselves.

Recently, some cities have startedeasing or not enforcingthe restrictionson their own in an attempt toboost thelocal revenue they get from property sales.

Thailand

Foreigners cannot, for all intents and purposes, buy land in Thailand and are generally restricted to purchasing condominiums, although they cannot own more than the equivalent of 49 per cent ofthe total floor area of all the units in a single condominium building.