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Canada to Restrict Private-Equity Investments in Housing Market — Update

By Paul Vieira

 

OTTAWA--Canada said on Friday it intends to curb private-equity activity in the country's residential real-estate market, part of a suite of housing policies aimed at addressing stretched housing affordability and a dire shortage of homes.

Officials say the new measures will be formally presented in next week's annual budget plan, and both Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland have crisscrossed the country in the past two weeks revealing some of the new policies. Officials acknowledge the country faces a housing crisis, and evidence suggests younger households, where the primary earner is younger than 35, are opting not to enter the housing market because it's so costly.

Among the new initiatives unveiled Friday are plans to crack down on private-equity investment in the housing market. "The role of private equity in our housing market needs to be addressed," according to government documents released ahead of a press conference featuring Trudeau and Freeland. "When purchasing a home, Canadians expect to be bidding against other potential buyers, not a multi-billion dollar hedge fund."

Officials said the budget plan out on Tuesday will include a section whereby authorities want to ban private-equity firms and other large corporate investors from acquiring single-family homes. The government intends to hold consultations with housing market participants, with more details on how the ban would work later in 2024.

"This is promising," said John Pasalis, president of Toronto-based Realosophy, a real-estate agent brokerage, of the government's plan. He said some local investment firms had signaled their intent to acquire more housing units, and a recent report from Cushman & Wakefield, the real-estate services company, said there was a compelling case for private equity firms to target single-family homes in Canada.

"All signs were suggesting that this private-equity trend was going to accelerate," Pasalis said.

However, officials did reject a proposal from a parliamentary committee that the finance ministry change tax rules covering real-estate investment trusts, or REITs, and that they be taxed like other corporations. REITs in Canada are allowed to flow their income to shareholders, and pay taxes only on the undistributed portion of their income.

The extra revenue earned from changing REITs' tax structure could be put toward housing-related goals, the committee's report said, adding that redesigning the tax structure could lead to creating new affordable housing units.

Housing Minister Sean Fraser told reporters that changing REITs' tax treatment isn't part of the government's plan. He said the focus on private equity stems from concerns that acquisitions by hedge funds could lift prices for homes, which are already at elevated levels.

Officials didn't immediately produce data that indicate the role private-equity firms play in the residential real estate market. Lawmakers on a parliamentary committee heard testimony last year suggesting the country's 25 biggest investment firms--among them REITs, private-equity firms and asset managers--own about 350,000 apartment suites, or 20% of Canada's purpose-built rental housing with more than six units.

 

Write to Paul Vieira at paul.vieira@wsj.com

 

(END) Dow Jones Newswires

April 12, 2024 12:50 ET (16:50 GMT)

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