The Canadian dollar is currently in the midst of its longest decline against the U.S. dollar since the 1970s. The loonie has fallen about 34 per cent since 2011 on the back of lower global oil prices, which have been falling in an environment that is seeing supply far outweigh demand. While the slumping loonie may be difficult for the country’s oil producers, it does provide an opportunity for a number of the country’s industries. As the purchasing power of our neighbours to the south grows, so does their interest in Canadian exports; many in the tourism industry are predicting an upswing in activity, and anyone who’s looking to buy a house in Canada would certainly see their dollar go further.
"I am finding that I am now hearing more from my U.S. clients looking to take advantage of the opportunity the dollar value presents,"
says Jamie Sarner, sales person.
With the Canadian dollar sitting so low, it makes the prices of Toronto real estate much more affordable to U.S. buyers, according to Sarner. The disparity also opens up new opportunities for anyone in the city looking to sell their property.
Toronto real estate is very hot at the moment, and it seems like that trend will continue for the foreseeable future. But this comes at a time when housing prices south of the border are again on the rise. Some analysts are showing U.S. home prices have risen by about 20 per cent each year. That means that any Canadians looking to buy their own Florida vacation home may have missed their opportunity, but the sinking loonie presents a great opportunity for American buyers, and Sarner doesn’t think the high Toronto prices should turn off potential U.S. investors.
"The more expensive the price of real estate is the less it attracts investors,"
"That being said, the outlook on Toronto seems to be very positive long term and the U.S. dollar today most likely counters the increase in value that the Toronto market has seen. Its almost like buying property in a thriving market on sale."
There are other reasons that the Toronto market should look appetizing to U.S. property buyers. Canada’s mortgage regulations make for a more stable market, one less likely to succumb to the pitch and wane of global economic trends. That provides a safer investment opportunity and a higher likelihood that buyers would see a positive return on their investment.
"I think that the safeguards and policies in place in Canada try to inhibit the ability for purchasers to buy real estate to buyers who may not be qualified. This makes for a market that should be more stable over time which is important when the market takes a downturn. This makes the scenario of a crash a little less likely,"
Still, there could always be difficulties that arise from cross-border deals. Sarner says issues can always arise that could be harder to work through thanks to the inability to communicate face to face.
"It would be harder to deal with a buyer from the U.S. on closing if there were legal issues to sort out a problem on closing,"
Canadian lenders will finance home purchases of non-residents, but they usually require significantly larger down payments. Non-resident buyers should expect to pay as much as a 35 per cent cash downpayment. You’ll be expected to provide proof of income and have your credit verified. It’s possible mortgage interest rates might be higher than what Canadians would pay, but the rates should still look attractive to U.S. buyers.
If the property is an income property, Sarner advises investors consult a tax accountant who has experience in Canadian/U.S. tax laws. During the sale of any property, taxes need to be paid to the Canada Revenue Agency, and funds from the proceeds of the sale will be held to ensure they payment is made.
This shouldn’t act as too much of a deterrent though, according to Sarner. He says making sure you receive a good sized deposit will help smooth out any issues.
"A seller should try to obtain a sizeable deposit upon accepting an offer. It would also be a good idea to ensure that the buyer has done their homework with respect to the requirements of a foreign buyer,"
Just like with any major transaction, you should always do your homework. If you’re considering buying real estate in Toronto as an investment, make sure you’re aware of all the regulations. Sarner says you should also carefully consider where you see the profit coming from, be it from finding tenants or from an eventual sale of the property down the road.
No matter what though, he says you need to consider your options carefully.
"Like any purchase of real estate, it is important to take your time finding the right investment in areas that you see upside short and long term,"
"This can be with regards to both the potential rental and sale ability. It's always nice to be able to get in to the market, but you also have to see how to get out. You often make your money on the buy side."