Home Buying

Buying Canadian property: What you need to know

Canada has no restriction on who can buy real estate but there may be taxes, fees or additional costs, depending on where you buy. Here's what you need to know if you want to own Canadian property
Toronto's Dundas Square. Buying Canadian commercial real estate

Canada is a beautiful country, boasting breathtaking mountains, countless lakes, and some of the best hiking, biking and ski resorts in the world. When you add into the mix Canada’s stable economy and predictable politics the country becomes a desirable location to have a second home (or invest in property). No wonder it’s the fourth country on a list of where ultra-high-net-worth North Americans purchase property (behind the U.S., UK and France), according to the Knight Frank’s 2018 Wealth Report. 

But if you’re not from Canada be prepared for the buying process to be very different from what you’re familiar with in your own country. Still, if you’re seriously considering purchasing a property in Canada you can familiarize yourself with the process to avoid headaches and unexpected surprises.

Choose your location

Map of Canada. Choose a location

On the whole, properties in Eastern Canada has lower prices than the properties in Western Canada. For instance, Montreal, Quebec has the lowest residential prices of all the major metropolitan areas in Canada. Whereas, property in British Columbia, the westernmost province of Canada, boasts some of the highest prices.

The location you choose needs to be based on your budget, your needs and your wants. If you really want a property that is surrounded by mountains, close to glacier-fed lakes, and near world-class downhill biking and skiing, then chances are you won’t be interested in a lovely cottage in Cape Breton, in Nova Scotia. The key is to find the location that best suits your lifestyle and then start shopping for properties in or near the scenery and amenities you want.  

Find your property

open-house-couple-find-your-property

The best way to find the perfect place is to start your search the old-fashioned: by way of driving around the area you’re interested in. If that’s not possible, consider searching for properties online and then using Google Street View to examine the location. Once you’ve narrowed down where you want to be located and what type of property you’re interested in, consider getting in touch with a local Realtor. A local agent will be an expert in the area and understand the local laws, ordinances and taxes. This agent shouldn’t replace your legal representative but should be used a resource to find what could be the perfect property. 

Ideally, your local agent should have experience dealing with foreign buyers looking for property in Canada. The fastest way to find an agent with this type of experience is to ask an agent in your home-town for a referral. You can leverage your faith and trust in your own, local agent to find an agent with similar strengths.

Learn the process

Learn-the-process. Woman sorting through paperwork.

Once you find a property you’re interested in, you will want to schedule an in-person property tour. If this is logistically not possible, consider asking your real estate agent to arrange a virtual tour, either through Skype, Facetime, Zoom or by recording a walkthrough and sending it to you.

After reviewing notes made during your tours (or e-tours), examine the listing sheet (or sales sheet) that was provided by your Realtor. If you like what you see and you think the property is within budget, it’s time to make an offer. But, be prepared: In Canada, making an offer is the start of a legal contract. If you are uncertain about any aspect of the property or sale process, stop, and clarify the question or concern with your agent.

Once all is settled and you still want to make an offer, you will need to prepare a Sale and Purchase Agreement. This document will outline how much you want to pay, how much deposit you will provide (money provided to the seller, in good faith, and held in trust until the sale is finalized or refunded back to you if an agreement isn’t reached), and the exact date when you want possession to take place. Once complete, the agreement is finalized and signed, your agent will present the offer to the seller, along with your deposit cheque.

At this point, the seller can reject, accept or make a counter-offer. Depending on the offer, and the state of the market, you may go a couple rounds of counter-offers before both of you agree on the final purchase price and the closing date. 

Once both parties agree, a copy of the signed agreement will be presented to your real estate lawyer (or notary) who will then examine any sales conditions and terms. The lawyer must be informed about who will be registered on the deed, whether it’s a person, a group, or a corporation. The lawyer will also ensure that the house has a clean title, is free of liens and that all property taxes are paid. The lawyer will have additional responsibilities, but these will only be completed once your financing is in order. 

Get the money

Get-your-financing. Fists full of cash

If you’re looking to buy a vacation home, there’s a good chance you’re paying cash for the purchase. If you are, be prepared to show documentation that clearly shows where this money originally came from. There are initiatives in place in Canada to prevent money laundering, so any purchase of property is scrutinized in this country. 

If you are financing your purchase, you may still need to provide a paper trail for the deposit and down payment money but you will need to take additional steps to get financing, as well. While most Canadian banks are open to foreign buyer mortgages, you will be required to put a much higher deposit down — typically 35% to 50% of the purchase price. Also, you may be charged a higher rate of interest by the bank or lender, depending on what evidence you can provide for debt levels, current income and net worth. 

Taxes, legal fees and other costs

Lock-in your mortgage rates before banks hit their year-end tax time

Be aware that laws and taxes can change significantly depending on the region of Canada where the property is located.

For instance, if you purchase property in Vancouver (or other major metro B.C. cities) or Toronto, Ontario, you will be subject to foreign buyer’s tax. This tax can add substantial costs to your property purchase. In Vancouver, Victoria and Kelowna, B.C. the foreign buyer’s tax is 20%, with an on-going annual tax of 0.9% in 2018 that rises to 2% per year starting in 2019. Plus, there is an additional tax on luxury houses valued over $3,000,000. The Greater Toronto Area and the Golden Horseshoe Area has a 15% foreign buyer’s tax. Both taxes were created in order to slow down foreign investors who some suspected were inflating housing prices in these areas and making it unaffordable for people living and working in the area to afford to buy a home.

Another cost to consider is the Land Transfer Tax (or Provincial Property Tax). This fee is between 0.5% to 2% of the property’s total value. There is also a Goods And Service Tax (GST) of 5% on newly constructed and substantially renovated homes. 

As a buyer, you typically won’t have to pay real estate agent fees. These commissions come out of the seller’s pocket. However, you will have to pay legal fees. Once the deal is finalized, the financing is secured and the deal is finalized, your legal representative will then verify that the property has a clean title, there is an absence of liens, and no property taxes are outstanding. This person (or firm) will then prepare a statement of adjustments, which will confirm the total sale price and the amount owed to the seller, taking into consideration the deposit and down payment that you made earlier, as well as any adjustments (taxes or utilities already paid by the seller, etc) and legal fees.

On the closing day, you are required to deliver (or pay for delivery or transfer of funds) a certified cheque for the total sum, as stated in your prepared statement of adjustment. This is delivered directly to your legal representative unless you are otherwise told differently. Your lawyer or legal representative will then transfer the money to the seller’s legal representative and register the home in your name. At this point, you will be provided with a summary of the transaction, the final statement of adjustments and the keys to the new property. 

 

Alyssa Davies
Alyssa Davies

Alyssa is a personal finance blogger who focuses on mixing finances with laughter. Through her blog, Mixed Up Money, she helps people relate, learn and become inspired. She recently joined Zolo as the content specialist and brings her passion for property and smart money matters to this growing brand.