Investment in real estate in Canada. Subtle details of the process

17.08.2017

It’s not a secret that most millionaires and billionaires from the Forbes list and similar ratings earn a significant part of their capital from real estate investments, and some of them even managed to multiply their fortunes several times.

Sooner or later, any businessman or entrepreneur having certain capital starts thinking about creating additional sources of income, and choice often falls precisely on real estate, including foreign one. Of course, there are other investment tools that can bring a significant income, but historically, investments in real estate are the safest, and, subject to proper approach, they completely exclude possibility of losing money or going in the red.

Among investors from the CIS countries, Canadian real estate is little-known and poorly studied. Despite this, however, real estate in Canada is of unprecedented demand among investors from China, the United States, Arab countries, Iran and Latin America, and it is almost the real estate market number 1.

The Canadian economy is notable for its stability and ability to successfully withstand crisis phenomena. If you have a look at the crises of 1997-1998 and 2008-2009, their consequences almost did not affect Canada, which is due to diversification of Canadian economy and its significant underlying strength.

Annually, 250-260 thousand immigrants come to Canada for permanent residence, and about 80% of them usually stop in Vancouver, Toronto and Calgary, the traditional centers of culture and traditions development. At the same time, the cities are respectively ranked 3rd, 4th and 5th in the rating of the most comfortable cities for living, according to The Economist.

According to Canadian House Price Index from Teranet, average real estate prices in Canada have grown by 53% since 2008. In Vancouver, for example, according to the National Bank of Canada, house prices are rising every year on average by 10-12%. Despite the fact that in August 2016 the government imposed a 15% tax on purchase of real estate in Greater Vancouver by foreign buyers to restrict growth of real estate prices, in spring of 2017 demand was restored, and prices increased by 6.7% in the period from the beginning of the year to June. Vancouver’s real estate remains the most expensive in Canada. According to CREA, average cost of housing exceeded $1,000,000 in April 2017.

According to the Canada Mortgage and Housing Corporation (CMHC), foreigners prefer buying objects built in recent years. In Vancouver, for example, share of foreign apartment owners in houses built before 1990 is less than 2%, while in facilities built after 2000, their number is 6%.

What are the restrictions when buying real estate in Canada?

Both physical and legal persons can freely purchase residential and commercial real estate. The only exception is persons prohibited from entering Canada or prohibited from carrying out activities in the territory of the country. Therefore, the main obstacle when choosing real estate for a foreigner can be obtaining entry visa to the country.

Also, when making a transaction on real property purchase, the buyer is not required to be present in person, he/she may be represented by an authorized person, who can be a relative, close person or, for example, a Canadian lawyer. In this case, it is necessary to draw up and sign a document, Power of Attorney (proxy), with such authorized person. As a rule, transactions by POA are carried out in case of purchase of new housing or the housing under construction.

What reference information should be available when investing in Canadian real estate?

  1. It is necessary to understand the dynamics of price changes and number of transactions in the region where the purchase of real estate is planned.
  2. Understanding ratio of rental rates to real estate cost.
  3. Possibility of attracting credit leverage. Ratio of debt financing to your own funds. Cost of a credit resource.
  4. Factors that affect development of the region and possible population growth.
  5. Tax policy. Tax payment schemes and possibility of tax optimization.
  6. Legislative base governing real estate transactions.
  7. Stability of political and financial systems.

What matters should a foreign investor address when choosing real estate?

  • Determine type of real estate, which purchase is planned (residential/commercial).
  • If it is residential real estate, will it be a condominium, or a house, or a townhouse?
  • The region where the purchase is planned.
  • Purpose of the purchase: investment or further residence in real estate?
  • Determine available budget for the transaction. Is it necessary to attract credit leverage and on what terms?
  • In case of buying real estate for investment purposes, it is desirable to have a financial plan for income and costs, as well as the strategy of further exit of investment.

Greenstone Pacific (www.greenstone-pacific.com) can become a reliable partner when investing in real estate in Canada and will accompany the client at all stages of purchase process. We will help to choose the region and type of real estate given the budgetary constraints and possibility of using a credit resource. We will provide high and stable return on your investment in real estate.