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non resident buying property in toronto

Complete Guide For Non-Residents Buying Property In Toronto

Updated November 2020

A Complete Guide For Non-Residents Buying Property In TorontoCan foreigners buy property in Canada? Absolutely, yes. Canada’s real estate market is open to just about anyone living beyond the country’s borders. That includes expats, investors, anyone from abroad who’s planning to live in the country for the long-term—you name it.

What’s more, there are no restrictions on the type and amount of property you can buy in Canada, the city of Toronto included.

Not sure if you are a nonresident? Here’s how Canadian law defines this:

  1. Anyone who routinely, normally, or customarily lives in another country and isn’t considered a resident of Canada
  2. A person with no significant residential ties in Canada and has either lived outside the country throughout the tax year or has stayed in it for less than 183 days in a tax year

So, if you fit the category of a nonresident and the thought of buying property(s) in Toronto has crossed your mind, this guide is right on time to take you through the basics of what you need to do.

Before You Begin Your Search For Property

Top on the list of things you should do before commencing your search for the appropriate property in Toronto is to enlist the help of reputable professionals to guide you through the complicated and demanding elements of this process, ranging from taxation, financing, and insurance to home inspection, buying, and selling.

Spare some time to identify a competent and experienced investment consultant. Besides sharing information and ideas that are helpful to your journey of acquiring property or owning land in Canada, most consultants are a ‘one-stop shop’ where you’ll get connected with a variety of professionals who will ensure your needs, expectations, and goals are met.

That aside, we’ll share the basics and crucial information about each of the aforementioned processes so that you have a solid foundation on which to build your investment.

Taxation

Just like most investments, real estate is subject to tax, and in order to know and fully understand the tax implications of purchasing or selling a property in Toronto, you will need to consult with a Canadian tax accountant.

Be sure to ask them about their professional experience and knowledge in relation to your particular tax situation.

And as you do that, here’s what you should know first: As a non-citizen of Canada, a permanent resident of the country, a foreign cooperation, or taxable trustee, any purchase you make of a residential property in the Greater Golden Horseshoe Region (GGH) is subject to a 15% foreign buyers tax, which they term as a Non-Resident Speculation Tax (NRST).

However, there are exemptions and rebates as well. You can find out if you qualify for either by taking a look at the overview of the NRST. One such exception is if a Canadian citizen is involved in the purchase process.

Another type of tax to take note of is the Land Transfer Tax (LTT), which is the same for both foreign buyers and Canadian residents. You may qualify for a rebate of this tax if you are a first-time home buyer and you plan to use the acquired property as your primary residence. The rest of the taxes you’ll need to pay include property tax and income tax.

As for selling a property as a non-resident, expect a 25% non-resident withholding tax, calculated as a percentage of your property’s sale price. Generally, the process has forms that need to be filled out, procedures that need to be followed, and penalties for non-compliance.

More details can be found on the Canadian Revenue Agency website.

Financing

Toronto’s housing market is one of the most dynamic, with regular episodes of property prices and sales rising, stabilizing, or dropping. Part of your preparation to handle these eventualities should be to have your funds in a Canadian Bank ready to be put to use.

Remember, exchange rates do fluctuate often, not to mention the complexities and delays of transferring money into Canada from a foreign country. Given the nature of the real estate market, such happenings can easily ruin your plan.

Usually, when presenting your offer to buy a property in Toronto, you’ll have to provide a deposit, which is usually 5%-10% of the purchase price of the property. That has to be done within 24 hours and in the form of a bank draft, money order, or certified cheque in Canadian dollars and from a Canadian Bank.

It’s therefore a good idea to arrange to meet with a Canadian bank manager or make a personal visit to a bank to open an account. As a foreigner, you’ll need proper identification and to go to the institution in person.

Seeking A Mortgage

Seeking MortgageAlthough you may know a lot about the mortgage market in Toronto, there’s even more to gain when you enlist the help of a licensed mortgage broker to help you obtain a loan. Besides having access to a good number of Canadian banks, they are in a better position to negotiate a friendly rate for you, thereby eliminating a situation where you have to move from bank to bank seeking a better rate.

That aside, it would be great to familiarize yourself with the basics of obtaining a mortgage in Toronto. First, know that it’s possible to get a mortgage as a non-resident buying a home in Toronto. But you must have a minimum of 35% for the down payment. Lenders can offer a mortgage of up to 65% of the property’s value.

You’ll also require a reference letter from your bank, bank statements for the past three months, credit information, and tax returns to prove that you are able to pay the mortgage. To gather all this information, some lenders will conduct interviews via email, phone, or fax. You’ll realize that these requirements vary from bank to bank and that some are stricter than others.

As for the  mortgage interest, both Canadians and non-residents are subjected to the same rates, provided one satisfies the mortgage eligibility criteria.

Lastly, be aware of the closing costs, as this will help you know the right mortgage amount to borrow. These costs include:

  • Purchase price
  • Bank appraisal fees
  • Inspection fees
  • Insurance costs
  • Property transfer tax (This amount is paid by the buyer. It’s 1% of the first 100,000 CAD plus 2% of the remaining balance)
  • Closing legal fees

Insurance

You are definitely going to want financial protection against theft, fire, and other unforeseen events that may damage your property or personal belongings. On top of that, when applying for a mortgage, lenders are going to ask that you present proof of homeowner’s insurance for your property.

For a non-resident, obtaining insurance is sometimes difficult and quite expensive, but given its relevance in the above situations, you should consider finding ways to obtain a policy. Note that unlike auto car insurance, homeowner’s insurance is not mandatory in Canada.

Insurance brokers are a great alternative to personally contacting multiple insurance companies. Most of them represent a number of insurance companies and are ready to share information about the available choices.

Insurance agents, on the other hand, usually represent a single insurer and, like an insurance broker, can help you determine things like applicable coverage, premiums, discounts, property insurance requirements, and so on.

However, if you opt to deal directly with an insurer, make sure to obtain several insurance quotes and all the necessary information before proceeding to make an offer. Sites like OmbudService or Lowest Rates serve as insurance finders where you can search and compare different insurance providers across Canada. You can look for one online as well.

Home Inspection

An inspection of the physical condition of a property is a critical part of the home-buying process, which should be added to your purchase contract as among the conditions of closing the sale.

Get a professional inspector or contractor to examine the building’s structure, its physical components, and systems for defects and malfunctions. That includes roofs, heating/cooling systems, paint, windows/doors, the foundation, and so on.

The land around the property should be examined as well, for issues related to drainage, grading, and plants. Sometimes, the seller will issue you an inspection report, but don’t solely rely on it because it might be compromised, possibly because the inspector could be their friend, colleague, or relative.

It would be better to hand over the report to your inspector and let them follow up on the issues addressed therein. If possible, accompany them during the inspection so that you can learn more about the property, ask questions, and get a sense of any underlying problems.

Home Buying & Selling

These two processes may seem obvious, but there’s a lot involved and an investment consultant can help you to navigate either with ease. For example, a common question we get asked often is “does one need to travel to Canada to do a property search?”

Well, you can search for properties online, hire an agent to do so, and even purchase a property from just about anywhere in the world. However, there are particular stages in this process where you’ll need to travel to Canada, like when you have to open a bank account, which, as we stated earlier, is necessary in the property buying process.

Other processes, like taking ownership of a property, commonly known as a ‘closing,’ don’t really require you to be present in Canada.

That aside, other professionals, like a property management firm, can help you to look for quality tenants or to manage the property. This is, of course, done at a cost. The great advantage about enlisting such a service is that you can own an investment property in Toronto without being worried about how to run it from afar.

When selecting a property management consultant or firm to work with, see to it that you’ve narrowed down on a firm that understands and has plenty of experience dealing with foreign home ownership.

Hire A Real Estate Lawyer

When buying a real estate property in Toronto, a lawyer’s main job will be to make sure the real estate transaction is processed accordingly. Normally, such transactions are not only complicated, but they do involve a significant amount of risk.

Part of the lawyer’s job will be to review the terms of your agreement, make sure the funds for the sale are successfully paid to the seller, and that you are registered as the property’s new owner on the necessary documents.

In most situations, they come in just after you’ve reached an agreement with the seller and the property has been secured. Make sure the lawyer you select to represent you is competent and experienced in the legal aspects of your specific real estate transaction. (Don’t forget that there are both residential and commercial real estate lawyers).

FAQs: Non-Resident Buying Property In Toronto

Can Foreigners Buy Property In Toronto?

It is legal for non-residents to buy property in Toronto. Like all buyers, they must follow the proper procedures for purchasing a property. This includes paying all necessary taxes, and there is an additional tax that non-residents must pay that is known as the Non-Resident Speculation Tax (NRST).

To learn more about the NRST, you can see our complete guide on this tax for foreigners buying property in the Toronto region here.

Does Toronto Have A Non-Resident Buyer’s Tax?

Yes; there is a Non-Resident Speculation Tax (NRST) in the Toronto area that all buyers who are not residents will have to pay in addition to the usual purchase fees and taxes.

While there are some exceptions and rebate situations that can be applied when buying properties as a non-resident, most non-residents will end up being responsible for this tax whenever they decide to buy in the area. You can learn more about exemptions and rebate situations here.

Is Buying A House In Toronto A Good Investment?

Making the choice to invest in the housing market anywhere can feel like a huge risk, and it is true that there will always be some level of risk. That said, in Toronto, real estate investment can be incredibly fruitful.

The area continues to show a huge demand for rental inventory despite the huge growth of rental property listings over the last few years. Property values in the region have also been trending upward for years, and this pattern is expected to continue. Equity increase is all but inevitable.

Real estate, in general, is a lower-risk investment than other common types of investing. As long as you enter the market with the proper education and safety checks in place, Toronto can be a great place for real estate investment.

Can A Foreigner Get A Mortgage In Canada?

Yes, non-residents can get a mortgage in Canada when planning to buy a house there. In many cases, Canadian banks will require a higher down payment from non-residents than they do for residents, but the interest rates are very similar.

The usual down payment is a minimum of 35% of the home’s value, but different banks and lenders have different rules for these numbers.

In addition to the down payment, non-residents will often have to show the following as well:

  • Bank reference letter
  • Employment verification letter (including income verification)
  • Bank statements (at least three months)
  • Credit check

Much of this documentation is the same documentation that is needed for anyone to apply for a mortgage. The process is not necessarily any more difficult for non-residents when compared to the process for residents. Ultimately, the main difference is how much of a down payment is needed.

Do You Need A Lawyer To Buy A House In Canada?

In Canada, a lawyer must sign the transfer of real estate between two parties. Additionally, there is specialized software that pulls up information for the transfer as well as other aspects of a property transaction. This software can only be accessed by lawyers, so having a lawyer present for the closing is a must.

Lawyers can be involved only for the closing, or they can be involved earlier in the process. When buying property as a non-resident in Canada, getting a lawyer who is familiar with overseas purchasing procedures is a great idea. This will help you avoid any major pitfalls and prevent easily missed mistakes from occurring.

How Much Does It Cost To Buy A House In Canada?

The cost of a house in Canada will depend on the location, type of home, and many other factors.

According to the Canadian Real Estate Association, the national average home price in September 2020 was around $605,000. In a year-on-year comparison, this was up over 17%. A similar trend of increase has happened over the last few years.

In addition to the cost of a property, there are a number of other fees and taxes that you will need to pay when buying a house in Canada:

  • Non-resident speculation tax, if applicable
  • Property transfer tax (at both the provincial and municipal levels)
  • Special taxes on new builds
  • Sales tax on mortgage insurance
  • Any applicable interest fees

Where Is The Cheapest Property In Canada?

There are many areas of Canada where property can be found at a great value, but there is not any one specific answer as to where it is the cheapest. After all, the definition of what is considered “cheap” is very dependent on any buyer’s or investor’s situation. Additionally, the plans for the property will have a large influence on what areas you should be looking in.

The market is always changing; the best way to find the cheapest land and best investment properties is to connect with experienced investors and property managers working in the area. If you are looking to find and manage affordable properties in the Greater Toronto Area, connect with Buttonwood Property Management today to hear our latest recommendations.

In Conclusion

If you’ve been wondering what it’s like to buy property in Toronto as a non-resident, all of the above processes sum up the key elements you should pay attention to. As you’ve probably realized, some processes, such as taxation and financing, are more involved than others, like hiring a real estate lawyer.

Nonetheless, as a non-resident buying property in Toronto, you have to invest your time and resources in all of these things, as each has to be done to perfection in order for your home-buying process to be successful.  Go ahead and look for extra information where you feel it’s needed and always ensure that the professionals you are working with are qualified and experienced to carry out the tasks properly.

Lastly, note that Toronto is one of the best Canadian cities, not just for real estate investors but also for those who want to move and settle here. Some of its notable qualities include a strong economy, cultural diversity, better living conditions, a growing population, among others.

Therefore, you have every reason to consider it as your investment destination or an ideal place to settle. But also note that owning real estate in Canada, whether one or several properties, doesn’t expose you to any immigration privileges. If your plan is to settle here, you’ll have to meet the country’s immigration laws in order to qualify.

 

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