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Buying Land in Canada
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01. How to Buy Land in Ontario, Canada
What You Should Know
- When buying land in Ontario, Canada you'll need to have a land survey conducted and figure out zoning for the land.
- You can get land loans to finance the purchase of land, or use HELOCs, personal loans, or receive financing from the seller of the land.
- Land loan lenders will require a down payment of between 30% to 50%, with higher required down payments for remote and inaccessible land.
- You can purchase privately-owned land from private sellers, or public land owned by the provincial government, also known as Crown land.
02. A Few Things To Look Out For
You might be looking to buy land in Ontario to build your future home, for commercial purposes, or as an investment. Buying land in Canada can be complicated and requires a lot of research. Here are a few things to look out for when buying land in Ontario.
Different Types of Land in Ontario:
There are three types of land that you can purchase in Ontario: Raw Land, Vacant Land (zoned land), Crown Land
Raw Land
Raw land is land that has never been developed before. Raw land won’t have any utilities such as power and water, and there won’t be any structures on the land. There might also not be any road access. Raw land is privately owned.
Vacant Land
Vacant land is land that is serviced or partially serviced, which means that it may have power, water, septic, road services, and existing improvements or developments on the land. Vacant land is also privately owned.
Vacant Land or Not Vacant Land?
Vacant land is land that doesn’t have any permanent structures or have been largely developed. For example, an open field would be considered to be vacant land. Farmland would most often not be considered to be vacant land.
HST will only apply to vacant land that has been used for business purposes. If the land was for personal use, such as for a residential home, then there would be no HST charged.
Most land in Ontario is Crown land, which is public land owned by the provincial government. Nearly all of northern Ontario is Crown land, while southern Ontario is mainly privately-owned land. In fact, 87% of Ontario is Crown land!
Buying crown land has restrictions and conditions on the use of the land. Crown land can be bought or it can be rented for specific uses. Applications to purchase or use Crown land will be reviewed using Ontario’s Crown Land Disposition Policy, which helps to ensure sustainable development. Crown land is sold at market value, with exceptions allowing Crown land to be sold under market value for purposes that benefit the public.
If you choose to rent Crown land, your rent is based on the market value of the land, with a minimum annual rent amount.
What kind of land should I buy?
Raw land is the cheapest to buy, but it also requires the most work. You will need to connect services and utilities, or develop them yourself if municipal services are not available. This might include building a water supply well, a septic tank, and physical road access. Vacant land can be more expensive than raw land, but it is easier to get financing for and to develop.
03. How to Finance Land Purchases in Ontario
Land Loans
You can get private financing to purchase land in Ontario. Vacant and raw land is risky for a lender since you are not directly attached to the land, compared to a residential mortgage where you can be at risk of losing your home if you miss your mortgage payments. Depending on the type of land, you will need to make a down payment of at least 30% to 50%.
Raw land will require a higher down payment, have higher interest rates, and will be harder to get a loan for. You may need to go through an Ontario private lender or a mortgage broker to get a land loan.
Some lenders, such as First National, consider land loans to be under commercial financing. This means that they may require you to have cash flow from other properties or cash reserves.
HELOCs and Personal Loans
Depending on how large the purchase is, you may choose to pay for the land using cash, a personal loan, a HELOC, or a combination of these. If you currently own a home, you may use a home equity line of credit to borrow money to purchase the land.
You could also pay for the land purchase through a mortgage refinance on your current home or by getting a second mortgage on your home.
Seller Financing
Seller financing, or owner financing, is when the seller of the land acts as a lender. You will purchase the land from them by making a down payment, and then you will make loan payments to the seller just like you would make mortgage payments to a bank.
What to Look Out For When Purchasing Land in Ontario
Zoning
Zoning controls how the land can be used and what buildings can be constructed. For example, if you purchase land that is zoned for agricultural purposes, then the land will need to primarily be dedicated towards agriculture. You can request a zoning bylaw amendment or rezoning, however, it is a lengthy process with no guarantee of approval. You will need to also get a building permit from your municipality.
Land Survey
You will need a land survey done so that the boundary of the land lot can be determined, along with easements, restrictive covenants and any structures or features in the lot.
Access
For raw land or for land that doesn’t have existing road access, building a private road extension or driveway to access your property may require going through the property of other privately-owned land. You may also consider paving an existing gravel road. Having gas, phone lines, and power lines run to your home can be costly.
Soil Test
If your property isn’t serviced by a local municipality, you may need to construct a well and a septic system for water and sewage. A soil test (percolation test) will be needed to see if the ground of your property is suitable for the construction of a septic system.
Development
You could use a construction loan to finance your home construction. If you purchase a lot from a subdivision, there might be a condition that you must use their builder.
The cost of developing your property will depend on your land, such as removing trees and brush to prepare for construction. If it is a heavily wooded lot, lot clearing can be a significant expense.
Not all land can be developed. Land lots might have conditions and restrictions on the land title which may prevent the construction of any buildings or prohibit certain uses of the land. This is called restrictive covenants. Restrictive covenants are attached to the title, which means that it will be passed along to you during the sale of the land. Restrictive covenants automatically expire after 40 years.
Taxes
You will need to pay Ontario land transfer tax when you purchase the land, and you’ll also need to pay Ontario property taxes even if you haven’t built a home on the land yet. Some municipalities may have lower property taxes for vacant land.
Do I have to pay sales tax when buying land in Ontario?
You do not have to pay Ontario sales tax on the purchase of most vacant land. If the land that you are purchasing has been subdivided by an individual, such as in a subdivision with three or more lots, you will need to pay HST.
Building a Cottage on Crown Land in Ontario
There are plenty of places to buy a cottage in Ontario, but did you know that you can build a cottage on Crown land in Ontario? Ontario only allows Crown land to be used for cottage lots if the land is located within the boundary of a municipality, and the municipality will need to request for disposition of the land to be used for cottages. Crown land can only be used if private land is not available. Ontario will also not allow Crown land to be used for cottage development on lakes that have lake trout, or if the land has cultural value.
The process for being granted disposition to use the Crown land can be lengthy, and the burden is on the applicant to get the approval process rolling. According to the Government of Ontario, municipalities acquiring Crown land for cottages include Elliot Lake, Pickle Lake, Ignace, Sioux Lookout, Coleman Township, Greenstone, and Atikokan.
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