Ontario and B.C. homebuyers face a big tax hike

Garry Marr
Sun

The new harmonized sales tax being proposed in British Columbia and Ontario may end up being an overall wash for some consumers but anyone buying a new house is about to get dinged.

The HST met with some resistance from the real estate sector in Canada’s largest province when it was first proposed earlier this year but the government agreed to some concessions.

New homes in Ontario currently just face a 5% goods and services tax which builders have buried in the price of the home since the tax was introduced 19 years ago. Starting on July 1 of next year, new houses would face a combined HST which would be 13% in Ontario.

With new home sales slowing after a seven-year bull run, the last thing the industry needed was something that would curtail activity further.

There was a sigh of relief when the government agreed to grandfather from the tax any deals signed prior to the date the announcement was made, June 18, 2009. Deals closed before July 1, 2010 would also not face the tax.

Everybody else was in trouble.

So the government came up with an exemption from the added tax on the first $400,000 of any new home, meaning consumers outside of Toronto were for the most part unaffected.

Despite the government’s “generosity,” about 40% of people buying a new home in Toronto are going to face a major tax hit. That’s the percentage of new homes that sell for more than $400,000.

On a $500,000 home in Toronto, the HST will mean $6,000 in new taxes.

Here’s how it works. The HST means an additional $40,000 in new taxes on that home, based on 8%. Builders get an estimated 2% tax credit on supplies, lowering the bill to $30,000. Minus a $24,000 tax break on the first $400,000 and you get to $6,000.

So who is going to pay for that $6,000? As the price goes up, the tax bill gets higher. It’s $36,000 for a $1-million home.

“I don’t know this for a fact but I don’t think any builder will make [the HST] an extra closing cost because they imbedded the GST for so long,” says Stephen Dupuis, chief executive of the Toronto- based Building & Industry Land Development Association.

Maybe, that extra tax is not added on to the sticker price but at some point, the consumer is going to pay. Maybe, through a higher price, cheaper materials or fewer finishings thrown in.

“A tax like this is going to be passed on to the consumer over time and the consumer is going to lose,” says Brian Johnston, president of Monarch Corp., one of Toronto’s largest home builders.

Economist Benjamin Tal, of CIBC World Markets, predicts the tax will have an impact on housing sales. “It’s not like something you can brush under the carpet,” says Mr. Tal. “There will be reduced demand.” He predicts the industry will build more houses without all the finishings. That will leave the consumer to do work on the black market with contractors to avoid the HST. That’s what happened in the Maritimes where the HST has been in play for years, said Mr. Tal.

“This will give a boost to the under-the-table transactions. Is that an optimum thing?” says Mr. Tal.

It’s no wonder British Columbia’s housing industry is fighting the HST tooth and nail. It’s not interested in the Ontario compromise of an exemption on the first $400,000 of a home. B.C.

will provide a $20,000 tax break on the first $400,000 of a purchase, the amount being lower because the province has a 7% sales tax.

“There is no single family home here you can buy at that price,” says Peter Simpson, chief executive of the Greater Vancouver Home Builders’ Association.

“They’ve taken what happened in Ontario and thought it would fly here. They underestimated the pushback on HST out here.” The provincial budget released this past week gave few hints the province might back down on taxing the industry, other than a throwaway line that it would work with industry groups to minimize the impact of the HST.

Mr. Simpson says he’s not interested in any compromise, including any compromise that might grandfather housing now under construction from the new tax.

“I won’t even talk about that.

It will mean we’ve given in and we’re not,” says Mr. Simpson.

Good luck. Something tells me the cost of housing in B.C. is going to rise.

© Copyright (c) The Vancouver Sun

 

CMHC predicts only 16,250 new homes in B.C. this year, but forecast is better for 2010

Derrick Penner
Sun

British Columbia‘s residential construction sector will end 2009 at a near-dismal low, but 2010 should be a little bit better, according to the latest forecast from Canada Mortgage and Housing Corp.

The national housing agency expects builders to break ground on 22,000 new homes in the province next year, according to its forecast released Thursday, which is a 35-per-cent increase from the 16,250 units it is forecasting will be started by the end of 2009.

That 2009 figure, however, is less than half the number of starts the province counted in 2008, and is only about two-thirds of the five-year average of starts from 2004 through 2008.

Canada Mortgage and Housing Co. (CMHC) analyst Robyn Adamache said construction is down considerably more, some 70 per cent in Metro Vancouver alone, but believes those numbers will improve as builders respond to the more active housing resale market that has developed over the last few months.

“I think most developers are keeping an eye pretty closely on resales,” Adamache said. “They’re seeing sales heating up again with fewer active listings. And prices are starting to move higher again, so [developers] may be thinking about their next projects.”

Peter Simpson, CEO of the Greater Vancouver Home Builders’ Association, said CMHC might see some of that improvement in starts in its August figures as some of his organization’s members have managed to retool, reduce prices and continue to sell homes.

“It’s a mixed bag,” Simpson said. “Some members are being risk averse, others are stepping in front of the rest and showing some confidence, and others have just got their doors closed right now.”

He added that CMHC’s forecast numbers are no surprise to builders as they watched resales spiral downward last year and adjusted accordingly.

“In 2010, they’re expecting some improvement, and that’s a result of what they are seeing in increased sales levels,” Simpson said.

Adamache said a general improvement in the economy and consumer confidence and continued population in-migration (35,000 new residents expected for the Lower Mainland alone) should support higher levels of starts in 2010.

In Metro Vancouver, CMHC is forecasting 11,000 new-home starts for 2010, a 16-per-cent bounce back from the 9,500 new-home starts it expects to see by the end of this year.

That 2009 figure is also slightly less than half the number recorded by the region in 2008.

In Abbotsford, CMHC is forecasting 450 starts in 2010, up from expected 350 starts by the end of this year, but still only a fraction of the 1,285 starts recorded in 2008.

For Victoria, CMHC is forecasting 1,320 starts in 2010, which is an increase from the 930 it expects to have been started by the end of 2009, but is still less than the 1,905 recorded in 2008.

Nationally, CMHC forecast housing starts will reach 141,900 this year and increase to 150,300 for 2010. This is a significant improvement from the earlier part of this year, when the annualized pace fell to less than 118,000 in April.

Still, these expected numbers fall well short of the pace of more than 200,000 housing starts that held steady between 2002 and 2008.

© Copyright (c) The Vancouver Sun

Metro’s average property prices climb to within 3 percentage points of their peak

Derrick Penner
Sun

Real estate prices rose again in August and were approaching their levels of a year ago, numbers released Wednesday by the Greater Vancouver and Fraser Valley real estate boards showed.

Market watchers, surprised by the strength of the rebound, said it appeared buyers were cashing in on record-low mortgage rates while they last.

Sales set records in July and stayed hot in August. The question now is whether the market can keep up the pace.

“Before I would call this a complete recovery I would want to see a couple of months of data,” Robyn Adamache, a market analyst with Canada Mortgage and Housing Corp. said in an interview.

Adamache added that there now are five months worth of data showing an upward trend, but “it remains to be seen whether this was just a one-shot deal where everybody was pre-approved for their [low-rate] mortgages and they basically jumped into the market, and whether or not [the market] can be sustained for the rest of the year.”

However, Adamache said on balance, Metro Vancouver’s average property prices, since their trough last March, have climbed back to within three percentage points of their peak.

She estimated that from peak to trough, average prices fell some 15 per cent.

Record-low mortgage rates, which fell as low as 3.65 per cent on five-year fixed-rate mortgages before rising again after June 1, played a big role in the market.

“If I had to put [market performance] on one thing, I would have to say interest rates,” Carolyn Heaney, Vancouver area manager of mortgage development for the Bank of Montreal, said in an interview.

Heaney said her mortgage lenders had a lot of clients who had been approved for mortgages with the low rates, and had 90 days to buy homes and close their purchases before their pre-approvals expired.

“There were certainly a lot of people who jumped off the fence in order to keep their rates,” she said.

Kevin Lutz, B.C. mortgage manager for RBC Financial Group, said that despite the recession, a bit of consumer confidence has been returning to the market. Lutz said the past few months have seen buyers cram almost a year’s worth of buying activity into a short period.

In the area of Metro Vancouver covered by the Real Estate Board of Greater Vancouver (REBGV), that translated into 3,441 sales through the Multiple Listing service, a 120-per-cent increase from last August, when the region saw 1,568 sales.

Prices in Metro continued to edge up with the benchmark price (the average price of the typical property sold) for detached homes hitting $732,656 in August. That was just 0.7 per cent below last year’s benchmark price for detached homes.

Some communities saw detached-home prices rise above their levels of a year ago. On Vancouver’s west side, for example, the benchmark of $1.4 million in August was three per cent higher than in the same month a year ago.

The $685,746 benchmark for detached homes on Vancouver’s east side was 3.2 per cent higher than a year ago.

New Westminster, Pitt Meadows and the Sunshine Coast also saw detached home prices higher than a year ago.

“It has been surprising,” REBGV president-elect Jake Moldown said. “I don’t think if you had talked to any of us in January that we would be expecting sales levels to be where they are today.”

However, he said with price adjustments and low interest rates combining to reduce mortgage payments, a lot of first-time buyers have jumped into the market, helping set off a chain reaction of upward movement.

In the Fraser Valley, realtors recorded their second busiest August on record, with agents racking up 1,786 sales through the MLS in August, up 96 per cent from 910 sales in the same month a year ago, when the market was sliding rapidly.

For the period of June through August, the board said valley realtors saw 5,857 MLS sales, which outpaced the same period of 2007, but is still far from matching 2005’s 6,866 sales for June, July and August.

Fraser Valley realtors saw the benchmark price (the average price of a typical property sold) for single-family homes creep up 3.8 per cent over the past three months to $483,839 in August, not quite erasing the losses of the past year. That price was still 3.5 per cent below last August’s $501,317 benchmark.

© Copyright (c) The Vancouver Sun

Susan Lazaruk
Province

Next year’s Olympics won’t cause the real-estate market to dramatically rise or fall, but B.C. will see a gradual total increase in house sales of six per cent in 2010, according to one real-estate company.

The recent uptick in the real-estate market — housing sales have doubled in some B.C. regions — has less to do with the coming Olympics than with pent-up demand from the downturn, coupled with low interest rates, said realtor John Geha, president of Coldwell Banker.

“We can’t put too much emphasis on that [the Olympics causing a surge in real estate],” he said.

He said the Games is a chance to showcase the province to the world as a clean, safe, friendly, uncrowded place close to the mountains and the ocean, with relatively stable prices, but he said it won’t help those hoping to flip properties.

“We can use it [the Olympics] as a marketing tool,” he said. “It’s not a rush to make a quick profit.”

He said this year’s increase in sales, which have kept prices from falling more than one per cent year-to-date, is due to twenty-something first-timers buying in, as well as 35- to 45-year-olds who held off during the last boom.

And offshore investors are eyeing B.C., said Geha. “There is still a lot of money coming in from the U.S., the Pacific Rim and Europe,” he said. “We’re opening up a new office that will be mainly Chinese because of the tremendous amount of interest coming from China.”

Geha dismissed a suggestion last week from analysts, including senior economist Michael Gregory of BMO Capital Markets, that the market will cool once the pent-up demand is filled, especially without job growth.

Geha, on a cross-country media trip, said the news stories can influence the market.”We’re not saying everything’s rosy, but we are happy with the way the marketing is performing,” he said.

© Copyright (c) The Province