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Real Estate News: HST could cause a boom in the fall ’09 housing market.

September 2, 2009

Thinking of buying a new home or condo?

You might want to take action sooner rather than later. That is, if you don’t want your Real Estate purchase to be subject to the proposed harmonized sales tax.

The proposed HST is planned to take effect in Ontario July 1, 2010. That’s when the 8 per cent provincial sales tax will be blended with the 5 per cent federal GST into a single 13 per cent tax. Presently. only the 5 per cent GST currently applies to new homes and condos.

If the new home or condo you’re looking at is priced at $400,000 or less, things shouldn’t change much for you. There is to be a rebate of 75 per cent – 6 % of the of the provincial portion of the tax. But if your new home or condo exceeds that amount, you can expect to pay significantly more.

“For example, on a $600,000 house, you’ll be paying $12,000 more in tax than you do now (factoring in the rebate up to the $400,000 mark, the current 2 per cent “embedded” tax in home prices, etc.) That’s a significant improvement over the original Ontario government proposal, where the buyer of a $600,000 home would have had to pay the full 8 per cent provincial portion of the tax on the entire purchase price.”

The HST rebate is only for principal residences. This means new cottages, ski chalets or a weekend condos, will be subject to the full 8 per cent tax increase.

If you sign an aggrement of purchase and sale now and close before June 30 next year, it is said that ‘the deal’ will be “grandfathered” and only GST will apply. But if weather or other issues delay closing beyond July 1, the new house or condo will become subject to the new HST (the exaqct amount depends on the degree of completion at July 1st, 2010) and your agreement should specify if you or the builder pays the tax if that happens.

There are various ways builders can pass on the HST to buyers and he thinks most builders will absorb it up to $400,000 and above that, will sell houses at an “all-inclusive” price. “It remains to be seen how the market will react,” he said. But as Ontario consumers are used to paying an all-inclusive price for homes (currently, with the GST included), they would likely prefer this option to having a house marketed without the tax included in the advertised price.oakville real estate - canada economy

“Most people are going to freak out about the HST,” says Paul Pettipas, chief executive officer of the Nova Scotia Home Builders Association, where the HST was implemented in 1997. “But Canadians just get excited for awhile and then accept it. It will (most likely) affect new home sales for about three years, then things will get back to normal.”

Frank Giannone, president of the Ontario Home Builders’ Association, says anyone contemplating a new home purchase, especially a new house or condo priced above $400,000, would be wise to act now and try to have it close by June 30. He advises that builders should try to build as much as they can too, to capitalize on the possible pre-HST sales rush.

Veteran builder Hugh Heron of Heathwood Homes would like to see the provincial government take things farther and not charge the new tax on any sales deal signed before July 1, 2010, even for homes and condos closing after then.

“I’m certainly not a fan of the tax and this is a great opportunity to stimulate the economy, especially in the GTA where unemployment is at 10 per cent,” says Heron. “It’s an easy way to create jobs without spending any money. Making every home sold before July 1, 2010 exempt from the HST regardless of the closing date will stimulate jobs, I’m convinced of that. It’s a no-brainer way of stimulating the economy.”

Giannone says he’s already getting customer complaints about the HST as some of his Fram Group’s projects won’t close until after the HST is in effect; but he says most people intending to buy new will do so anyway, but will likely look at slightly smaller homes or condos than they originally intended.

The HST still has to receive legislative approval, says Giannone, but he has no doubt it will become law. That’s why his association has been turning lobbying efforts to the federal government, not only on the reno issue, but also to urge it to offer a progressive tax/rebate structure for the GST, as Ontario is doing with its portion of the HST.

Read Tracy Hanes’ full article New tax could trigger mini boom in the Toronto Star (August 29, 2009).

Similar blog posts:

McGuinty softens blow to Real Estate Buyers: Is it enough?” June 22, 2009


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