The 2024 U.S. election has ended with the re-election of former President Donald Trump. The new leadership is expected to significantly impact the Canadian real estate market in 2025 due to our close economic ties. Decisions from the new administration regarding international trade and taxation could have far-reaching consequences for Canada, influencing the supply of construction materials, cross-border investment activity, and domestic housing prices.
The Trump campaign has proposed a series of changes that include a 10% to 20% tariff on all U.S. imports from countries outside of China. As a result, Canada’s real estate market should be prepared for change.
Trade policies and tariffs
Dan Lundenberg, Partner and U.S. Corporate Tax Practice Leader, notes that a protectionist trade policy under a Trump administration could lead to increased tariffs and trade tensions. "If Trump comes in and imposes across-the-board tariffs on everything, it will have a huge impact on supply chains and the cross-border flow of goods and products…products that are used in the real estate industry.”
If the U.S. imposes tariffs on Canada, Canada might choose to retaliate in kind which would, in turn, lead to higher costs for Canadian developers who import materials from the U.S., such as rebar and other construction materials.
More expensive imports, as well as other potential policies (such as a promise to expel millions of undocumented migrant workers) could also put upward pressure on inflation over time. As Lundenberg explains, "If the U.S. takes on policies that are very inflationary it could have an impact on Canadian real estate because interest rates could continue to go in different directions." Overall, a Trump presidency will likely have a greater influence on the Canadian real estate market due to his unconventional proposed policies.
Impact on Canadian investors
The new administration will also impact Canadian investors who invest in U.S. real estate. Many of the tax provisions in the 2017 Tax Cuts and Jobs Acts are set to expire, and while it could be reasonably expected that a Trump presidency will leave Section 1031 for real estate transactions, there is no guarantee on this. Given that the 1031 rules intended to allow for greater liquidity and transaction volume, any change could lead to friction. While impossible to anticipate the specific changes it is possible that an expiration of the tax cuts will lead potential sellers to look for debt-financed cash out transactions and give rise to opportunities for private equity or UPREIT (umbrella partnership REITs) type exchanges.
Lundenberg also acknowledges that a protectionist U.S. government could deter Canadian investors, who might subsequently redirect their capital towards the Canadian domestic market.
Cross-border partnerships
November’s election outcome will significantly impact cross-border partnerships and collaborations between U.S. and Canadian real estate companies. Any increase in barriers will raise the cost of doing business across borders, potentially making it more challenging for Canadian developers to partner with U.S. companies and limiting their access to the U.S. market.
Trump's proposal to lower corporate tax rates would be a positive thing for Canadian businesses looking to invest in the U.S., but it comes with other risks, such as increased costs, trade barriers, and uncertainty. “The outcome of the U.S. election will undoubtedly have ripple effects on the Canadian real estate market. From potential shifts in foreign investment to regulatory changes that impact cross-border transactions, it is crucial that Canadians stay informed. Economic policies and trade agreements influenced by the Trump administration could shape both challenges and opportunities in 2025," comments real estate and construction leader, Jameson Bouffard.
Changes imposed by Trump’s second term in the oval office will be felt by Canadians across the country. It is important businesses understand the current policies in place and how they might impact their operations and the market.
Read more about what insights some of BDO Canada’s leaders offer for Canadian business leaders in the face of the fast-approaching Trump presidency and proposed tariffs. Or reach out to connect with one of our real estate & construction leaders.
The information in this publication is current as of December 2, 2024.
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