How the 2022 Federal Budget Impacts the Real Estate Market in a Huge Way

On Thursday April 7, Prime Minister Justin Trudeau made an announcement regarding the federal budget for the remainder of 2022. This budget introduced a series of new programs, regulations and restrictions that will impact the world of real estate investing in the coming years. 

How The 2022 Federal Budget Impacts The Real Estate Market In A Huge Way

On Thursday April 7, Prime Minister Justin Trudeau made an announcement regarding the federal budget for the remainder of 2022. This budget introduced a series of new programs, regulations and restrictions that will impact the world of real estate investing in the coming years. 

These new programs are in response to the 50 per cent increase in the average home cost over the last two years. This increase has been due to a variety of factors including rapid inflation, increased demand, and the limited supply of housing available on the market. The goal of these updates to the federal budget is to curb the rapidly rising market and return it to a level that will make homebuying an affordable goal for Canadians once again. Here is a breakdown of some of the prominent inclusions in the government’s new federal budget.

However, if you would like to have a one-on-one discuss about how some of these changes to the federal budget may impact or change you investment plans, click the link below for a free strategy call.

The Federal Budget Introduces A Ban on Foreign Investors 

One of the most notable inclusions in the new 2022 federal budget is a temporary ban on foreign real estate investors. This ban would prevent investors from other countries from purchasing residential real estate for the next two years. This ban would not extend to international students, foreign workers, or foreign citizens with permanent residency. 

This inclusion was in response to a growing concern that foreign investors have raised the cost of home ownership in Canada. In 2020, it was estimated 3.4 per cent of all homes in Ontario were owned by foreigners, with one out of eleven new condos built being purchased by these investors. However, many experts are claiming this ban will not directly lower housing costs, they do believe it will reduce the total competition for Canada’s limited housing supply, allowing more room for Canadians to enter the market. 

A New Housing Accelerator Fund 

Most experts agree that one of the driving factors in the rapid increase in Canadian home prices is a general lack of supply. For many years now, the introduction of new housing units has failed to keep up with the increase in population. In 2021, The Canadian Real Estate Association reported 667,000 residential properties were sold, with approximately one third of those properties being new constructions. This was 30 per cent more than the 10-year average. This caused a drastic decrease in the number of homes available on the market, driving home prices up dramatically. 

In order to combat the decrease in available supply, the government announced a new Housing Accelerator Fund with the intent to build 100,000 additional housing units. For this fund, the federal budget set out by the government plans to set aside $4 billion over the next five years. This fund will be available to builders and construction companies to further incentivize residential real estate development

Additionally, an extra $1.5 billion will be set aside over the next years to directly fund the development of six thousand new affordable housing units. At least 25 per cent of this money will be directly aimed at developing women-focused housing projects. There are also plans to invest in new co-op housing with $1.5 billion being set aside to fund a national co-op housing strategy with the intent to build six thousand more units. 

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Tax-Free First Home Savings Account 

One of the key problems Canadians are facing when it comes to entering the real estate market is the struggle to afford the initial down payment in order to buy a home. Currently, the average home price in Canada is over $816,000, which means in order to afford a 10 per cent down payment, Canadians would have to be able to save $81,600. 

In order to make it easier to save money, the government is planning to introduce a new Tax-Free First Home Savings Account as part of the federal budget, which would allow individuals to contribute $8000 to the account each year, with a total lifetime contribution limit of $40,000. These contributions will be 100% tax-free once withdrawn and can be deducted from the individual’s taxes each year as they are entered into the account. As well, any investment income made within the account remains untaxed, much like a traditional TFSA. 

Tax Updates for Real Estate Investors and Homebuyers 

The new federal budget also includes a number of updated tax regulations and incentives. Some of these are geared to make buying a home more attractive for first time buyers, while some of them are in place to curb the actions of flippers are short-term investors who are looking for a quick profit. Homebuyers will be able to enjoy a $1500 tax credit, while first-time buyers will also see the first-time homebuyer tax credit double to $10,000. 

Starting on May 7, the government plans to add government and harmonized taxes to properties that are bought and sold in under 12 months, actively discouraging the act of flipping residential properties for a quick profit. As well, all assignment sales on new constructions or substantially renovated residential properties will be taxable. 

Additional Inclusions 

Among other plans introduced alongside the new federal budget, the government announced a plan to set aside $5 million in funding from the federal budget over the next two years in order to establish a Home Buyers’ Bill of Rights. This would include things such as a legal right to a home inspection and an end to blind bidding in Canada. 

In order to combat money laundering, the government said it would also extent all anti-money laundering and anti-terrorist financing requirements to all mortgage-lending businesses within the next year. 

Finally, the government is planning to provide $150 million over the next five years to fund building code reform, prioritizing low-carbon construction, with an additional $200 million set aside for retrofits and large-scale development projects. 

If you are planning to buy a home or would like to learn more about what you can expect from the Canadian real estate market, contact LendCity by vising or call 519-960-0370. Alternatively, click the link below to book a free strategy call today.

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