Toronto is an international city in multiple respects. Statistics show it's among the most ethnically diverse in the world, with citizens representing over 250 ethnicities and 190 languages calling the 6ix home.
On the subject of homes specifically, there's plenty of variety to be found in the real estate market. That goes for property types and occupant demographics - a diverse city is bound to see a wide range of both. And as population growth and demand only continue to increase, investors foreign and domestic are putting their dollars into local listings.
The economic implications are huge. Today, we're explaining how and why it matters.
Foreign Investment vs. Domestic Investment
In real estate, foreign investment refers to capital coming in from sources outside the country. A category of buyers who are not Canadian citizens or permanent residents, it encompasses individuals, corporations, or investment groups from other countries - particularly China, the United States, and European nations.
Domestic investment deals with capital from within Canada. Canadian citizens, permanent residents, and locally registered companies wear the label. These parties generally have the same interests as their foreign counterparts, with the main differences tying back to legal status, taxes, and all that other fun stuff.
Let's break down what those differences actually look like in practice:
Tax Implications
Foreign buyers face significantly higher costs upfront. The Non-Resident Speculation Tax (NRST) adds a 25% tax on top of the purchase price for residential properties in the Greater Golden Horseshoe region, which includes Toronto. That's a massive chunk of change - on a $1 million condo, you're looking at an extra $250,000 just for not being a citizen or permanent resident.
Domestic buyers don't deal with that particular headache. They still pay land transfer taxes (both provincial and municipal in Toronto's case), but they're spared the NRST entirely. Plus, Canadian citizens and permanent residents can access programs like the First-Time Home Buyer Incentive and various rebates that foreign investors aren't eligible for.
Financing and Lending
Canadian banks typically require larger down payments from non-residents - usually 35% to 50% of the purchase price compared to the standard 20% (or even 5% in some cases) for domestic buyers. Interest rates tend to be higher, too, since lenders view foreign buyers as higher risk. Local credit history, employment verification, and income documentation are all straightforward when you're already in the system.
Exit Strategy Considerations
When it comes time to sell, foreign owners face withholding taxes on the proceeds. The Canada Revenue Agency requires buyers to withhold 25% to 50% of the purchase price until the seller's tax obligations are sorted out. That can tie up a significant amount of capital for months.
Domestic sellers have a cleaner exit. If the property was their principal residence, they might not owe any capital gains tax at all. Even if it were an investment property, the process is more straightforward and doesn't involve the same withholding requirements.
Foreign Investment In Toronto Real Estate
Of the city's plethora of condos and development projects, a large portion has attracted capital from outside Canada's borders. Foreign ownership in Toronto's core sits at around 3.8% overall, with condos hitting about 4%. The impact is more concentrated than those figures suggest when you look at non-owner-occupied condos (investment properties). In other words, situations where someone from another country with a lot of money thinks they can make more by owning and usually renting real estate here.
What's the Draw?
Toronto's appeal to foreign buyers isn't hard to understand. The city offers proximity to world-class universities like the University of Toronto and Ryerson (now Toronto Metropolitan University), plus major employment centers in finance, tech, and professional services. Newer condos in the city core generate rental yields of 4-4.5%, which is competitive by international standards. Add in Canada's reputation for economic stability, strong property rights, and Toronto's genuinely multicultural environment, and you've got a package that's tough to beat for investors looking to park capital somewhere safe.
When Foreign Investment Becomes a Problem
More money flowing into a country or city is generally perceived as a good thing. But in the context of Toronto's housing problems, it's not so welcome. When buyers from abroad purchase condos here, they snatch up control over a very limited supply. Local residents and investors then face stiffer competition and higher prices for the same units they're trying to buy or rent.
Sky-High Vacancy
First, there's the issue of how these properties get used - or don't get used.
Data from Toronto and Vancouver shows that 15-20% of non-owner-occupied condos are held by non-residents, many of whom leave spaces empty for extended periods. Toronto has a housing crisis and a vacancy problem at the same time because buildings go up, units get sold, but neighborhoods stay quiet because nobody's actually living there.
Local Buyers and Investors Priced Out
The core issue, though, is affordability. Foreign capital, particularly from buyers in markets where Toronto's prices look like a bargain, pushes property values beyond what local incomes can reasonably support. A family earning the median Toronto household income (around $87,000 as of recent data from the Canadian Mortgage and Housing Corporation) is already stretched thin trying to afford a condo, let alone a detached home. Foreign investors willing to pay premium prices drive up benchmark values across entire neighborhoods to make that reality worse.
Those looking to get into the Airbnb business from within Canada don't benefit too much from foreign real estate investment, either. Local investors who might have been able to acquire one or two properties for short-term rental operations find themselves priced out entirely or forced to look at less desirable locations that don't command the same nightly rates. They can't afford to buy properties, and if they do manage to acquire something, they're competing against a larger pool of listings.
Real Estate Regulations for Foreign Buyers Evolve
The regulatory landscape has shifted significantly over recent years in response to these ongoing problems. Lawmakers hope tighter rules and higher barriers for international buyers will disincentivize them from purchasing properties that would otherwise be owned by Canadians.
Ontario's 25% Non-Resident Speculation Tax, introduced in 2017, is an example. The federal two-year ban on foreign buyers that took effect in 2023 went even further, essentially shutting the door (with exceptions for permanent residents, work permit holders, and some other categories).
As for whether anything will come of both relatively new policies, early data suggests the measures have successfully reduced foreign investment activity in Vancouver, where foreign buyer share dropped from over 5% of transactions in 2016 to around 1.6% by 2018 following the introduction of its foreign buyer tax. Toronto saw similar patterns after implementing its 15% tax in 2017.
As an Airbnb entrepreneur, you have every reason to support Toronto real estate investment. Even the foreign kind can be good in moderation because it brings new capital into our pockets. Just remain cognizant that diversity among buyer citizenship doesn't mean growth for such a diverse, growing population. It's up to local purchasers and regulators to continue engaging in and contributing to the homes we have at home.
