Canada’s ban on foreign purchases of residential property is creating barriers to construction of new rental housing, another unintended consequence stemming from a law that was supposed to help Canadians buy more homes by barring foreign competition.

The ban, which is set to last for two years, has already led to the cancellation of hundreds of commercial property deals because the law’s definition of residential property includes land that is zoned for residential or mixed use. As well, the rules specify that no more than 3 per cent of any money going to a residential purchase can come from a foreign source.

But developers and real estate experts say the new rules are hampering development of rental apartments, which the federal government has said is critical to help deal with the shortage of affordable housing.

“The bottom line is we’re stuck,” said Clemens Sels, president of Toronto-based Colonia Treuhand Ltd. Group, which has been developing real estate in southern Ontario for 50 years and whose investor base includes wealthy Europeans.

Colonia Treuhand has plans to build about 1,000 rental-only apartment units across three sites in downtown Toronto. The land was bought about 15 years ago, and Mr. Sels said he had been organizing construction financing from his European clients.

But since the law went into effect Jan. 1, Mr. Sels said his project has been in limbo.

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