Restrictions on the purchase of real estate by foreigners are spreading around the world.

PARISE - It's easy to forget that shortly after the COVID-19 pandemic began, many property market experts predicted that house prices could fall once in a generation. The logic was that the dwindling economics of the pandemic, combined with people moving out of cities, would drive down costs for an extended period of time.

The opposite ended up happening in most places. Home prices in the US, Canada, UK, Germany, Australia and New Zealand have increased 25-50% since the COVID-19 pandemic began. This explosion is being driven by a number of factors, including low interest rates, supply chain issues in construction, and a shortage of affordable housing caused in part by investors buying large areas of residential inventory.

Some, however, see another culprit that deserves special attention: foreign buyers. Governments around the world are increasingly intervening in an attempt to drive down prices by restricting access to real estate purchases to residents only.

Canada

Canada recently made headlines by imposing a two-year ban on non-resident foreigners buying homes. Soaring housing costs in Canada. Foreigners can still buy real estate if they live in Canada, as well as refugees and some international students. It's an issue that could change familiar ideological traits, as the "foreigners" who are turned away are often wealthy investors who have a negative economic impact on struggling locals.

Canadian Liberal Prime Minister Justin Trudeau has said that placing restrictions on purchases by foreign buyers does not mean that individuals are being alienated. "The attractiveness of Canadian housing attracts speculators, wealthy corporations and foreign investors," Trudeau's Liberal Party promised before the last Canadian election. "This leads to a real problem of underutilized and vacant housing, rampant speculation and skyrocketing prices. Homes are for people, not investors." The cost of buying a home has exploded in Canada - by the time Trudeau's plan was announced in 2022, prices were up more than 27% from the previous year. "So many new homes are looked at as assets, as investments - as opposed to places to raise families and build communities," Trudeau said at the time.

Globe and Mail reports that in Vancouver, on Canada's west coast, many local politicians have been demanding a ban on non-resident acquisition for years, hoping to stop real estate "flipping" and devaluing the city's overvalued housing market. For over a decade, the city has consistently ranked as one of the most expensive places to live anywhere in the world. In the 2010s, mechanical homes in the Vancouver area cost at least half a million Canadian dollars - cheap compared to the average price of $1.9 million for a detached home in 2022.

Realtors say it's politics. However, not everyone agrees with the new policy, particularly realtors who argue that foreign owners are not a significant factor in Canada's high home prices. Brandon Ogmundson, chief economist for the B.C. Real Estate Association, told Le Monde he believes the ban is "more of a political policy than an economic policy" that will ultimately hurt the housing market. But when B.C. introduced its own tax on non-resident home purchases in 2016, the number of foreign buyers dropped from 13.2% of total sales to 2.5% three years later. According to the Government of Canada, in 2020, foreign non-residents owned 3.4% of housing in Ontario and 4.7% of housing in British Columbia, with the highest rate of 6.2% in the City of Vancouver.

International restrictions

Countries where more people own their own homes tend to experience less wealth inequality. According to the OECD, home ownership has an equal impact on wealth, as countries where more people own their own homes tend to experience less wealth inequality.

With the global wealth gap widening and the loss of affordability for housing in many cities and even countries, how might a ban on foreigners buying affect the housing market?

Although every real estate market is different, similar dynamics are occurring in many countries around the world where governments are imposing restrictions or outright bans on the purchase of real estate abroad. Southeast Asia is leading the way in implementing such laws, with restrictions on foreigners purchasing land or certain types of real estate in many countries in the region.

For example, in Singapore, foreigners must be legal residents for at least five years before they can purchase a house. Buying government-subsidized housing and public housing is completely prohibited. Cambodia's constitution prohibits foreigners from owning land, but there are ways around the restriction. Traditionally, there has been a ban on foreigners owning land in Thailand, and this made it almost impossible for them to purchase real estate unless it was done through local companies. However, late last year, the government approved legislation allowing wealthy foreigners to buy houses and land in connection with attracting investors and digital nomads. Foreigners can now buy real estate, provided they show an investment of 40 million baht ($1.2 million). Similarly, Indonesia has also lifted the ban on foreigners owning real estate.

In Europe, there are also examples of restrictions on the purchase of real estate by foreigners. In Spain, for example, the Balearic Islands tourist vacation spot plans to ban foreign non-residents from buying real estate. The islands are the most expensive place to buy real estate in Spain, more expensive than even the capital Madrid. Property sales to foreign buyers in Spain are on the rise - the latest figures show an increase of 30.65% in the third quarter of 2022 compared to the same period in 2021. Local politicians say foreign buyers who can afford to pay higher prices than many locals are driving up values and creating "ghost villages".

Spain is not the only European country that restricts the purchase of real estate by non-residents. For example, in Croatia, citizens must live in the country for 10 years before they can buy rural plots. Non-EU citizens need permission to buy real estate no matter how long they have lived there. Buying real estate in many parts of Austria is also more complicated for non-residents and EU citizens, who must request permission from local authorities, meet a number of conditions, and pay additional taxes and fees.

Since the 1960s, Switzerland has had similar but stricter rules, which basically prevent non-resident foreigners and EU citizens living in Switzerland without long-term authorization from purchasing residential real estate. Denmark also does not allow non-residents to buy homes, and in Malta, people who have lived in the country for less than five years, including Maltese citizens, cannot buy more than one home.

>Not to be asked At the same time, there is concern in Australia that foreign buyers will shift their attention to that country now that Canada's ban has come into effect. Australia is struggling with its own housing crisis and there are already calls for the country to follow Canada's lead. In neighboring New Zealand, a similar ban has been in place since 2018, as in Canada, after the government accused wealthy foreigners of pressuring prices. At the time, foreign buyers accounted for 22% of home sales in the central Oakland neighborhood.

It may take time to assess the impact of restrictions such as Canada's ban. Some argue that the ban, which sets a maximum fine of $10,000 and provides an exemption for some short-term residents and those living in apartment buildings, doesn't go far enough.