Ontario HST And Barrie Real Estate
HST is set for July 1st, if you might be considering a real-estate transaction or are in one right now, what impact is this potentially to have on me? HST is likely to be put in place in a few provinces in July 2010, Ontario being one of them. The Barrie Real Estate market is actively taking pleasure in a big run up and values and activity are both very buoyant. Could some of this demand now be related to HST implementation in July?
The issue has been going on now for some 6-9 months and to date there are still un-answered concerns. Having said that, there's now some clarity, especially towards new build places of residence. The belief among most people seems to be that HST is likely to be a large negative for the real estate market and for this reason you had,"Better get in quick, before HST kicks in!", or another assumption that's been reported to me a number of times is, "A home will cost 13% more when HST becomes law". This blog is a fast discussion to highlight a number of the probable outcomes and dismiss a few misguided beliefs.
Please take note this discussion pertaining to the Barrie Real Estate market in Ontario and like a lot of things tax wise make sure you consult with your accountant or tax advisor / lawyer before entering into any real estate purchase. Please do not get into any real estate transaction based purely on tax consequences unless you have gotten all the appropriate advice
Buying a brand new build property:
This stands out as the area that will certainly be impacted the most by the new tax. You'll find two ingredients to constructing a home, 1. The cost of materials, 2. The cost of the labour. Material cost has generally brought both GST and PST (Goods and service tax & Provincial Sales Tax), the total of which is presently 13%. Looking forward the expense of material is still going to attract 13% tax, only now it will be labeled as HST (Harmonized Sales Tax). The labour on the other hand has always been subject to GST since the labour is a service given. A significant percentage of the cost of building a house is the labour and heading forward GST will become HST adding an extra 8% to the labour portion of the new home build. In the Barrie Real Estate market the typical house sells for $260,000. Of this approx. $80,000 is the cost of the lot leaving $180,000 as the cost of material, cost of labour in addition to builder profit. If we create an assumption that approx 50% of that cost is the material ($90,000) then the cost of material is going to go up from $90,000 to $97,200 ($90k + 8%). This needs to be fed through to the buyer. In addition HST will now be applied on the total purchase as opposed to only GST. The good news is that in many cases the GST (Soon to be HST) can generally be reclaimed by the builder providing the buyer signs to let the builder to do so. This reclaim is typically fed through to the Buyer as an offset on the majority of of the purchase. Be aware however, that if you are asking a builder for a larger than normal home, over $400,000, the tax rebate shrinks considerably and this cost will move through to the consumer. Which ever way you chop this up, it's going to cost far more to build a new house and consequently own a new home.
Buying / Selling a residential resale home.
There is presently no tax on the majority of residential re-sale homes and this remains unaffected, so resale homes will not be affected in this way. However, the following should be taken into account:
The following services attract GST: Your lawyer or attorney, Your Realtor, Home inspection, Title insurance, and if you are purchasing a high ratio mortgage your CMHC fees also. It's been calculated that if you are purchasing a house around $350,000 the extra cost to the consumer will be approx $2,000.
Last but not least: the actual cost as I perceive it!
Why don't we consider you have bought a new house or a new resale home. You move in and what's the very first thing you do? Most people paint something almost instantly, and over the upcoming year or so you are going to likely upgrade a deck, a family room, you might finish a basement, add a swimming pool or include some landscaping. The truth is, the majority of these require a contractor and contractors presently attract GST with their services. As from July 1st those contractors fees will be going up by 8% and that will probably hit the consumer straight in the pocket book. The Barrie Real Estate market will not be immune to this in any way shape or form. Even though the effect of this will likely be felt instantly by the consumer the real result will only be measurable over a span of a few years. For economies struggling to come out of a recession and with export type companies being mostly based in Ontario this tax will prove to be very unhelpful to say the least.
So the effect on the Barrie Real Estate market will probably be spread around between builders, buyers and with time as home-owners conduct repairs and upgrade their homes. It's impossible to argue from a Real Estate perspective that this tax is anything but hurtful. It brings no good to any of the Real Estate related industries either and may even lead to a resurgence in an underground black economy.
Again make sure you check with your trusty financial advisors before entering into any real estate transaction. This short blog is in no way a extensive look at the implication but mostly to be used as an effortless over view of what might be in the pipeline. One thing I am certain of. Don't rush out and purchase a house just because of the upcoming HST. If real estate prices head higher just because of HST then do not panic because if that is the only reason, then prices are sure to come back down after HST is implemented. The views expressed here are my own and do not carry the endorsement of Royal LePage.
Ian Hocking
Sales Representative
Royal LePage First Contact Realty, Brokerage.
The issue has been going on now for some 6-9 months and to date there are still un-answered concerns. Having said that, there's now some clarity, especially towards new build places of residence. The belief among most people seems to be that HST is likely to be a large negative for the real estate market and for this reason you had,"Better get in quick, before HST kicks in!", or another assumption that's been reported to me a number of times is, "A home will cost 13% more when HST becomes law". This blog is a fast discussion to highlight a number of the probable outcomes and dismiss a few misguided beliefs.
Please take note this discussion pertaining to the Barrie Real Estate market in Ontario and like a lot of things tax wise make sure you consult with your accountant or tax advisor / lawyer before entering into any real estate purchase. Please do not get into any real estate transaction based purely on tax consequences unless you have gotten all the appropriate advice
Buying a brand new build property:
This stands out as the area that will certainly be impacted the most by the new tax. You'll find two ingredients to constructing a home, 1. The cost of materials, 2. The cost of the labour. Material cost has generally brought both GST and PST (Goods and service tax & Provincial Sales Tax), the total of which is presently 13%. Looking forward the expense of material is still going to attract 13% tax, only now it will be labeled as HST (Harmonized Sales Tax). The labour on the other hand has always been subject to GST since the labour is a service given. A significant percentage of the cost of building a house is the labour and heading forward GST will become HST adding an extra 8% to the labour portion of the new home build. In the Barrie Real Estate market the typical house sells for $260,000. Of this approx. $80,000 is the cost of the lot leaving $180,000 as the cost of material, cost of labour in addition to builder profit. If we create an assumption that approx 50% of that cost is the material ($90,000) then the cost of material is going to go up from $90,000 to $97,200 ($90k + 8%). This needs to be fed through to the buyer. In addition HST will now be applied on the total purchase as opposed to only GST. The good news is that in many cases the GST (Soon to be HST) can generally be reclaimed by the builder providing the buyer signs to let the builder to do so. This reclaim is typically fed through to the Buyer as an offset on the majority of of the purchase. Be aware however, that if you are asking a builder for a larger than normal home, over $400,000, the tax rebate shrinks considerably and this cost will move through to the consumer. Which ever way you chop this up, it's going to cost far more to build a new house and consequently own a new home.
Buying / Selling a residential resale home.
There is presently no tax on the majority of residential re-sale homes and this remains unaffected, so resale homes will not be affected in this way. However, the following should be taken into account:
The following services attract GST: Your lawyer or attorney, Your Realtor, Home inspection, Title insurance, and if you are purchasing a high ratio mortgage your CMHC fees also. It's been calculated that if you are purchasing a house around $350,000 the extra cost to the consumer will be approx $2,000.
Last but not least: the actual cost as I perceive it!
Why don't we consider you have bought a new house or a new resale home. You move in and what's the very first thing you do? Most people paint something almost instantly, and over the upcoming year or so you are going to likely upgrade a deck, a family room, you might finish a basement, add a swimming pool or include some landscaping. The truth is, the majority of these require a contractor and contractors presently attract GST with their services. As from July 1st those contractors fees will be going up by 8% and that will probably hit the consumer straight in the pocket book. The Barrie Real Estate market will not be immune to this in any way shape or form. Even though the effect of this will likely be felt instantly by the consumer the real result will only be measurable over a span of a few years. For economies struggling to come out of a recession and with export type companies being mostly based in Ontario this tax will prove to be very unhelpful to say the least.
So the effect on the Barrie Real Estate market will probably be spread around between builders, buyers and with time as home-owners conduct repairs and upgrade their homes. It's impossible to argue from a Real Estate perspective that this tax is anything but hurtful. It brings no good to any of the Real Estate related industries either and may even lead to a resurgence in an underground black economy.
Again make sure you check with your trusty financial advisors before entering into any real estate transaction. This short blog is in no way a extensive look at the implication but mostly to be used as an effortless over view of what might be in the pipeline. One thing I am certain of. Don't rush out and purchase a house just because of the upcoming HST. If real estate prices head higher just because of HST then do not panic because if that is the only reason, then prices are sure to come back down after HST is implemented. The views expressed here are my own and do not carry the endorsement of Royal LePage.
Ian Hocking
Sales Representative
Royal LePage First Contact Realty, Brokerage.
