The post-pandemic world and current global state of affairs, has no doubt shifted immigration and real estate trends across the globe. For Canada, since the reopening of its borders, there has been a drastic increase in real estate investment and a wave of people wanting to immigrate to the country. There is no doubt that Canada still ranks as one of the best countries to live in, in the world!
Canada’s appeal on a global scale stems from its reputation for safety and security. With low unemployment rates, high quality of life and a stable economy, people from all over the globe want to get in on all of the benefits Canada has to offer. Its strong economy is attractive to those looking to increase their net worth and invest in properties and a market supporting quick growth value.
Many Canadians however, might argue the opposite. The effect of Covid-19 on Canada’s housing market has certainly broken records and caused unprecedented spikes. Canadian citizens and residents no longer find the real estate market welcoming, as prices and interest rates continue to skyrocket. The competition with foreign investors has increased, as Canada’s real estate market is still seen as a safe place for foreigners to park their capital.
Investing in real estate is one of the safest ways to earn a return on your money. The value of homes in Canada have been known to appreciate over a short period of time, which draws in investors from all over the world. They are able to diversify their investment portfolios and overall net worth in short time spans while maximizing long-term capital gains.
Different ways of investing in real estate in Canada:
Contrary to popular belief, there are a number of ways one can make money through real estate, without actually having to live in the property – although this is the most common method.
Here are some of the popular methods to invest in real estate in Canada:
Principal Residence Income
Purchasing property to use as a primary residence is the most widely approached route for long-term real estate investment. While living in the property and paying off the mortgage, you will simultaneously grow your wealth. The value of the property will increase over time and the return will be gained when the property is sold. This is of course assuming that you are going to be living in Canada.
Residential Rental Income
Another common approach, primarily for foreign residents, is to use a residential property for short or long-term rental income. Having tenants pay for the rent usually covers most monthly mortgage payments and property tax and can even earn you a profit. Many foreigners hire property managers to take care of the property, which has proved to be a viable solution. Property rental is an excellent way to increase your income while the value of the property appreciates over time. You will also be contributing to Canada’s housing market by providing rental property in a time of need!
Commercial Rental Income
The same idea of renting out residential properties can be applied to commercial spaces. This method of investment is not as common in Canada, as commercial property prices are generally much higher and maintaining these types of properties requires a lot more management. Although owners have the potential of earning a significant income, the upfront capital costs are likely to deter many from investing.
Real Estate Investment Trusts are companies that own and operate income-generating real estate or related assets. Your money is invested in to the real estate stock market, and in return you receive dividend-based payouts. This is a great alternative to physically owning and managing a property and is a hands-off approach to generating wealth, which is appealing to many foreigners.
A trend that has been on the rise in Canada the last couple years is property flipping, and it has proved to be an extremely successful real estate investment method when done right. A property which requires a substantial amount of work to be done, is bought at a low price. The value of the property significantly increases after renovations and is then sold for a greater profit. Although it seems like a straightforward procedure, it is a good idea to consult a properties lawyer or agent before commencing such a project, especially if you are not living close to the property.
Problems with investing in real estate in Canada
There is no single best way to invest in real estate in Canada. Each of the methods mentioned above have pros and cons attached to them, and should be carefully considered before making any commitments.
A main concern and often deterrent to real estate investments is the capital required upfront. The prices of homes in Canada have skyrocketed and can be difficult to secure. Mortgage lending programs used to create payment plans are often insufficient or are approved for a much lower amount than what is actually required. Even stocks require enough money to invest for long-term profits.
Another hinderance to real estate investment is the time it can take to actually see the appreciation in value of the property. Often times if it is a primary residence, profits are not made until the property is sold. Also, the income from rental properties is usually just enough to cover mortgage payments and property taxes rather than a second income. If you are looking for a quick investment, your best bet is to flip the property, but even then, the total renovation time could still add up depending on the extent of the work being done.
Finally, owning a property inevitably comes with risks associated to damages and liabilities. You are responsible for repairing any damage caused as a homeowner or by tenants. Also, any injury sustained on the property could be cause for potential legal action, resulting in thousands of dollars in legal fees. If you are not living in the country, this could create additional logistical issues and drive up the cost of investing.
It is a good idea to thoroughly research the investment and consider all of the risks associated with the purchase. Owning a property can be a lot of work, but can also be a very rewarding investment over time. It is highly recommended to speak to a real estate lawyer to understand all of the legalities of owning property as a foreign buyer.
Many investors are now prepared to argue, that since spring this year, Canada’s real estate market may no longer be the hot spot. Since April 2022, the combination of spikes in interest rates and plummet of housing supply has caused a decrease in the sale of homes across Canada.
The country is facing a major housing shortage, causing prices and competition to increase. There is a growing concern among Canadians that foreigners are purchasing what is left of the limited housing supply, and Canadians cannot compete with the surge of foreign investment.
As a result, the federal government has implemented a plan to target investments and rebuild a stronger economic future for Canadians. The Federal Budget 2022 outlines several measures to increase the housing supply and affordability for Canadians, which includes future restrictions on foreign investments and house flipping.
We could see a transformation in the very near future of Canada’s housing market. This could have profound impacts on foreign investors and their accessibility to Canada’s market.
Titan Law Corporation are experienced immigration and real estate lawyers in Vancouver. If you have any questions about purchasing property in Canada, contact us for your free consultation today!