HST is set for July 1st, if you are contemplating a real estate transaction or are in one now, what effect is this likely to have on me? HST will be implemented in several provinces in July 2010, Ontario being one of them. The Barrie Real Estate market is currently enjoying a major run up and prices and activity are both very buoyant. Could some of this demand now be related to HST implementation in July?

The debate has been going on now for some 6-9 months and as yet there are still unanswered questions. However, there is now some clarity, in particular towards new build homes. The perception among the general public seems to be that HST is going to be a large negative for the housing market and therefore you had ,”Better get in quick, before HST kicks in!”, or another perception that has been reported me me several times is , “A home will cost 13% more when HST becomes law”. This blog is a quick discussion to highlight some of the likely effects and dispel a few myths.

Please note this discussion related to the Barrie Real Estate market in Ontario and like all things tax wise please consult with your accountant or tax advisor / lawyer before entering into any real estate transaction. Please do not enter into any real estate transaction based purely on tax consequences unless you have received all the appropriate advice

Buying a new build home:

This is the area that will be affected the most by the new tax. Their two components to building a home, 1. The cost of material, 2. The cost of the labour. Material cost has always attracted both GST and PST (Goods and service tax & Provincial Sales Tax), the total of which is currently 13%. Gong forward the cost of material is still going to attract 13% tax, except now it will be called HST (Harmonized Sales Tax). The labour on the other hand has always been subject to GST as the labour is a service provided. A significant proportion of the cost of building a home is the labour and going 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 average home sells for $260,000. Of this approx. $80,000 is the cost of the lot leaving $180,000 being the cost of material, cost of labour and builder profit. If we make an assumption that approx 50% of that cost is the material ($90,000) then the cost of labour will rise from $90,000 to $97,200 ($90k + 8%). This will have to be fed through to the consumer. In addition HST will now be applicable on the whole purchase as opposed to just GST. The good news is that in many cases the GST (Soon to be HST) can largely be reclaimed by the builder providing the consumer signs to allow the builder to do so. This reclaim is usually fed through to the Buyer as an offset on most of the purchase. Be aware however, that if you are asking a builder for a larger than average home , over $400,000, the tax rebate shrinks considerably and this cost will flow through to the consumer. Which ever way you dice this up, it’s going to cost more to build a new home and consequently own a new home.

Buying / Selling a residential resale home.

There is currently no tax on the majority of residential re-sale homes and this remains unchanged, so resale homes will not be affected in this way. However, the following should be noted:

The following services attract GST: Your lawyer, Your Realtor, Home inspection, Title insurance, and if you are purchasing a high ratio mortgage your CMHC fees as well. It has been calculated that if you are purchasing a home around $350,000 the extra cost to the consumer will be approx $2,000.

Lastly: the real cost as I perceive it!

Let’s consider you have purchased a new home or a new resale home. You move in and what’s the first thing you do? Most people paint something almost immediately, and over the next year or so you will likely remodel a deck a room, you may finish a basement, add a pool or add some landscaping. The fact is, most of these require a contractor and contractors currently attract GST with their services. As from July 1st those contractors fees will be going up by 8% and that will hit the consumer straight in the wallet. The Barrie Real Estate market will not be immune to this in any way shape or form. Although the effect of this will likely be felt immediately by the consumer the real impact will only be measurable over a period of a few years. For economies struggling to come out of a recession and with export type companies being largely located in Ontario this tax will prove to be very unhelpful to say the least.

So the effect on the Barrie Real Estate market will be spread around between builders, consumers and over time as home owners perform 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 cause a resurgence in an underground black economy.

Agan please consul with your financial advisors before entering into any real estate transaction. This short blog is in no way a comprehensive look at the implication but intended as an easy over view of what may be in the pipeline. One thing I am certain of. Don’t rush out and buy a home just because of the impending HST. If real estate prices head higher just because of HST then don’t panic because if that’s the only reason, then prices are going to come back down once 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.

Filed under: Barrie Real Estate

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