The Canadian government’s decision to axe a 28-year-old visa scheme for immigrants will have a substantial impact on the housing markets in Canada, especially in Vancouver and Toronto, experts say.
Canada scrapped its Immigrant Investor Program earlier this month. The scheme was particularly popular with wealthy real estate investors from mainland China. Under the program, foreign investors with a minimum net worth of C$1.6 million (US$1.44 million) were granted Canadian residency in return for making an interest-free loan of C$800,000 (US$726,720) to the government for five years. The government returned the principal amount in instalments over five years.
Canadian Finance Minister Jim Flaherty announced recently that the Immigrant Investor Program had been scrapped.
"For decades, it has significantly undervalued Canadian permanent residence, providing a pathway to Canadian citizenship in exchange for a guaranteed loan that is significantly less than our peer countries require. There is also little evidence that immigrant investors as a class are maintaining ties to Canada or making a positive economic contribution to the country," the minister wrote in the 2014 budget report, adding that immigrant investors pay significantly lower taxes over a lifetime than other categories of economic immigrants.
Nearly 65,000 applications for Canadian residency under the Immigrant Investor Program were pending when the scheme was axed. Of the total applications, 45,500 were from mainland Chinese. Nearly 40,000 of these investors were likely to buy residential property in Greater Vancouver over the next six years, according to a report published in the South China Morning Post.
There was no direct reference to the decision’s impact on the housing market in the budget report. Experts, however, said that after scrapping of the scheme, Chinese investors who were making a beeline to buy properties in Canada, particularly in Vancouver, will be attracted towards residential markets in other counties, including Australia and the U.S.
Canadian Imperial Bank of Commerce’s (CIBS) deputy chief economist Benjamin Tal says his own research shows there has been a “significant softening” in activity in high end home sales in Vancouver, Canada’s most expensive city.
"It definitely has impacted the high end of the market. It is not that activity is going down, it is simply not rising,” the economist was quoted as saying.
Canada's government has been taking measures to cool down expensive housing market for the past few years. One of the factors inflating the market was large-scale investments from wealthy Chinese.
The Canada Mortgage and Housing Corporation (CMHC) tightened mortgage lending in 2013 by limiting guarantees it offered to banks and other lending companies, in an attempt to control rising housing prices. Earlier tightening steps included reducing maximum amortization periods from 30 years to 25 years, and reducing the maximum loan-to-value (LTV) ratio from 85% to 80%.