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Buying real estate in Canada and particularly in Toronto is very popular among foreign buyers. And there are strong reasons for that.
Safety of investment and stable increase in value
Canada has one of the most stable and reliable financial and social systems among other developed countries. It also has a fast developing economy, rich natural resources, and powerful industrial sector. Due to these factors investment in real estate in Canada is considered very safe and often is used by foreign investors as a way to protect their funds from devaluation, crisis and inflation in their own countries. In addition to safety, this investment is also profitable as the real estate market of Toronto have been demonstrating steady price increase for a long period of time.
Equal ownership rights for non-Canadians
Canadian law allows foreigners (non-residents of Canada) to buy, own, rent out, sell, and hand down their property to their successors without any limitations. There are no differences in the ownership rights between Canadians and non-citizens. Non-Canadians are also eligible for receiving a loan (mortgage) for the property they purchase in Canada. This makes buying properties in Canada very appealing to foreign investors.
Canada is a desirable place for immigration
Canada actively promotes immigration attracting more than 250,000 new immigrants every year. According to surveys, Canada is one of the top destinations in the world for those who want to move to another country. It is also a magnet for foreign students and young professionals who choose this country as their home and the place for building up their career. All this leads to a high demand in quality real estate especially in big cities and first of all in Toronto.
Even though the process of buying real estate in Canada is transparent and well regulated, there are certain specifics for non-resident buyers that need to be taken care of in advance.
Getting a loan (mortgage) by a non-Canadian
Foreign buyers of Canadian real estate are allowed to obtain a loan (mortgage) from a Canadian financial institution. However, there is a requirement to make a down payment in the amount of not less than 35% of the purchase price.
Here is the difference in the rules of buying property in Canada by local residents and by non-Canadians: residents of Canada can obtain a mortgage with much lower down payment. Another different rule for foreign buyers is that mortgage can be issued only for the investment properties intended for renting them out. However, it is allowed buying several properties by one person.
It should be noted that mortgage is not guaranteed to any foreign buyer with 35% down payment. The lender will also check the net worth of the buyer, his ability to make regular mortgage payments, and will request certain documents as a proof. I usually prepare for my clients-foreign buyers a list of required documents and detailed instructions well in advance, before their intended visit to Canada. Therefore, if you plan to buy a real estate in Canada, I strongly suggest contacting me in advance.
Closing the deal
I always recommend my clients to come to Canada in person for selecting property and signing the purchase documents. However, there is a possibility to by property without presence of a buyer in Canada.
A purchase can be made on behalf of you by your authorized representative to whom you give the Power of Attorney. There is another alternative that is commonly used: the purchase can be made through the use of a fax or a courier service for exchanging the signed and sealed documents between buyer and seller. The possibility of buying remotely will depend on the type of the property, whether mortgage required or not, the purpose of the purchase and so on. In other words, there are some issues that should be taken into consideration.
Particularly, an authorization letter that is accepted as a Power of Attorney should be arranged either through a Canadian Lawyer or in the local Canadian Embassy/Consulate. Canada does not acknowledge apostille authentication of documents and does not accept Power of Attorney issued by non-Canadian notaries.
Another issue concerns making payments. Payments for the purchased property in Canada are accepted only in the form of a Canadian Certified Cheque or a Canadian Bank Draft. Therefore, the buyer needs to have an account in a Canadian bank (for which he needs to visit Canada in person). There are also certain rules regarding money transfer from overseas banks to banks in Canada – for making payments for the purchased property.
I help my clients with all these issues and provide detailed information.
My services as an exclusive buyer representative in Canada are free for my buyer- clients
Real estate transactions in Canada can be complicated for those who do not live here or who arrived just recently. For starters, in Canada usually two agents participate in a transaction: Seller’s agent and Buyer’s agent. I act as an exclusive Buyer’s Agent when working with my clients-foreign buyers or Canadian residents. That means I represent my clients exclusively and protect only their interests.
How realtors are paid
In North America realtors are paid by the way of commissions. When a seller puts his property for sale he includes commissions in the selling price for agents from both sides (Seller and Buyer). The most common commissions rate is 5%, which is split between the seller’s and the buyer’s agents. Therefore, the buyer’s agent is paid by the seller, and the buyer pays nothing to his agent, for him the services of his agent are free.
Realtor in Canada
Realtor in Canada plays a much bigger role in the sale-purchase transactions than in most other countries. An agent not only helps with finding the right property, but he/she is the one who prepares all legal documents for arranging a transaction. Particularly, the Buyer’s agent is the person who prepares an Agreement of Purchase and Sale (not a lawyer). An agent also conducts all negotiations, makes sure that his client’s interests are protected, arranges technical inspections of the property, helps with obtaining insurance and takes care of all other issues in order to close the deal. Lawyer usually only checks the title and registers the transaction with municipal authorities. All other issues, such as terms and conditions of an Agreement of Purchase and Sale, obligations of parties, and other questions, are defined by a real estate agent when he/she prepares documents for the transaction. Therefore, the realtor’s skills, qualification and experience are crucial for their clients, for protecting their interests and for arranging a successful transaction.
Seller’s Agent and Buyer’s Agent
In Canada usually two agents participate in a transaction: Seller’s agent and Buyer’s agent. This makes sense as an agent can represent only one side in a deal, protecting his client’s interests and doing everything possible to achieve maximum benefits for the client. Therefore, the first step to a successful transaction is finding a good agent.
Specifics of property search in Canada
Unlike in other countries, where realtors offer properties only from their own listings, thus representing only their seller-client’s interests, in Canada a completely different system is in place. All properties that realtors put on the market are added to the unified database called MLS (Multiple Listing System). Every licensed real estate agent has access to this database with a possibility to obtain a lot of statistical and archive data about each property and neighbourhood. Consequently, when you ask an agent to help you with finding a property for you, he/she will be searching it for you in the MLS.
In that way every agent has equal access to the same database, and no matter what agent you use, they all will be looking in the same place. So when you choose an agent you take into account, first of all, his/her professionalism, experience, specialization, knowledge of the area, ability to understand the buyer’s needs and find for him the best properties on the market that match the buyer’s criteria.
Working with a realtor
The work of licensed realtor and his/her obligations to the client are highly controlled and regulated in the same way as the whole industry of real estate is regulated in Canada. On one hand, this gives clients a piece of mind and customer protection. On the other hand, this also imposes certain obligations on clients. Particularly, this concerns a possibility to back up from the deal, obligations of a client to his agent under a Representation Agreement, and so on.
When I prepare an Agreement of Purchase and Sale I try to include in it everything required for protecting my clients from potential problems. I am also very flexible in regards to an agreement for exclusive representation (Buyer Representation Agreement). Usually when you ask an agent to help you finding a property, he/she starts with signing such agreement. I never do that, because I don’t want to impose any obligations on my clients until the search is done, the right property is found, and my client is ready to put an offer.
Usually buyers work with one realtor. And if they are not satisfied they can choose another realtor. It is not recommended to work with more than on agent at the same time as this can cause a conflict of interests and lead to legal problems. That is why it is better to spend some time and do a research in order to find a professional and experienced realtor that you would feel comfortable working with and would be confident that you are getting the best services.
Both foreign buyers and new immigrants can transfer money from overseas to Canada tax free.
Capital Gain tax
When you sell the property in Canada there is an income tax that should be paid on the difference between the original purchase price and the actual sold price (Capital Gain). This amount is considered as your income and is taxed with the usual income tax rates. The taxable amount in such cases is only 1/2 of Capital Gain (50%).
However, there are some exceptions when this tax is not paid. If the property is sold by a resident of Canada and if this property was his/her primary residence at least during the last 6 months, the owner does not pay the Capital Gain.
In Canada there is no inheritance tax. If the property owner dies and his property goes to his successors, they do not pay an inheritance tax. However, the obtained property is considered as an income (Capital Gain) and is taxable under standard income tax rates. In case if this property was a primary residence of the successor and he/she is a resident of Canada, the Capital Gain tax is not paid.
Please note that the information provided here is not a specialist advice. It is strongly recommended to seek for professional advice from a relevant specialist (tax specialist, lawyer, accountant, etc.).
And if you’re new to Canada, you might enjoy this infographic (courtesy of www.cheapflights.ca)