Country Guides Country Guide: Canada

Date Published:

29/05/2008

Around five hours’ flying time at its nearest point (Newfoundland) to the UK, Canada is seldom one of the first destinations on Britons’ overseas property wish list, but maybe it’s time to take a closer look. The country offers well-constructed and priced property, spectacular scenery in the great outdoors, and there’s no language barrier to contend with.

By Gordon Miller

The Market

When most of us Brits head across the pond, we head for the USA. But given the downturn and grave uncertainty in the American property market, created by the sub-prime debacle, Canada looks a far better bet. Largely because of stricter government legislation regarding bank lending, Canada’s property market has not been adversely affected by the fallout from the US credit crunch. Only recently, mortgage terms were cut from 40 years to 35, which could reduce a repayment amount by up to 25 per cent.

Not only has Canada been unaffected by the sub-prime fallout, but in many parts of the country the property market is prospering. Amid fears that the market may yet take a downturn, the Canadian government claims that the fundamentals – low interest rates, rising incomes, and a growing population – mean it is unlikely to happen. To back up its claims, mortgage arrears are stable at 0.27 per cent and the construction of new homes remains at an annual pace of 200,000 units a year for the seventh consecutive year.

Nowhere is prospering more in Canada than the western provinces of Alberta and British Columbia. Home to vast deposits of oil and gas, Alberta has so much surplus cash it’s promising to reduce health care (National Insurance) payments, as well as to invest $4bn to improve the public transport infrastructure and lessen the province’s CO2 output. Accordingly, property prices show little danger of slipping at present; officially, they have increased by one per cent on the year to date.

Buyer's Guide

There are no restrictions to non-nationals purchasing a property in Canada. Banks are as happy to lend to foreign and domestic buyers. The Canadian legal system and buying process should be familiar to UK and Irish buyers, being broadly similar. All documentation is in both English and French. It is advisable to use the services of a local mortgage broker who will sift through numerous mortgage offers available. The current lending base rate in Canada is 5.65 per cent for a five-year fixed rate amortized over 35 years.

It's huge size and small population make Canada a self builder's paradise

There are a variety of mortgages types available such as interest only, capital repayment, fixed rate, trackers, and variable rate. A 60 per cent variable closed mortgage is most common option (i.e 4.15 per cent), and typically an overseas buyer will go for a 34 year mortgage term. Typically the banks will lend 65 per cent to UK and Irish buyers. There is a lending cap at CAD$750,000, however this can be increased upon negotiation and proof of earnings. Purchase costs differ, but it is wise to budget five per cent of the property price for buying charges, plus approximately CAD$1,000 for legal fees.

There is no stamp duty in Canada but GST (federal goods and services tax) is required on the purchase of all goods in Canada, including newly constructed real estate. It is charged at five per cent of the purchase price.

In Alberta there are no further purchase taxes, but in all other Canadian provinces there is an additional HST component which adds 12-14 per cent to the purchase price of a home.

In British Columbia (BC), a Property Transfer Tax, which is a land registration tax, is payable on the purchase of property. The tax due is one per cent of a property priced up to $200,000, and two per cent on anything higher. You should also budget approximately CAD$1,000 for legal fees in BC.

In Newfoundland, a government fee is assessed on the registration of the conveyance of a property. Registration fees are currently assessed at a rate of CAD$101 plus 0.4 per cent, based on the value of the document being registered. For example, if a property is valued at CAD$500,000 then the cost would be CAD$500,000 x 0.004 + CAD$101 = CAD$2,101.