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Blog by Patricia Houlihan - Personal Real Estate Corporation

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Macrealty Monthly Market Update - June 2010

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June 2010 Market Update

With the HST implementation date quickly approaching, many of you have asked what effect this new value-added tax will have on real estate prices in BC. To answer this question, we must break down its effects into 3 categories: New Construction, Resale, and Fees.

New Construction

This category is the one that is likely to be most influenced by the change from GST to HST. All new residential construction will now be taxable at the 12% rate rather than the previous 5%. To offset some of this, the government has introduced a New Housing Rebate which will significantly reduce the burden of the additional tax up to a house value of $525,000. For new construction valued at over $525,000, the purchaser will receive a flat rebate of $26,250, meaning the increased burden of this tax will only affect those purchasing a new home over $525,000.

But that's not the end of the story. The changeover from the GST & PST to the HST should result in significant real savings to the construction industry as they can now receive government rebates on their inputs. These cost savings will, through time, result in lower overall construction costs, which should help mitigate some of the additional tax burden for those buying new construction valued at over $525,000.

In fact, for those buying property valued at less than $525,000, the overall cost may eventually be lower than before the HST is implemented.

Resale

The HST should have little to no effect on the resale market as'used' homes are not subject to GST and will not be subject to HST. Instead, the government has a Property Transfer Tax, which will remain the same: 1% on the first $200,000; 2% on the balance.

Fees

HST will apply to the fees associated with a transaction and will lead to a slight increase in these fees. That said, many of the fees currently associated with transacting a home already charge both GST & PST so there will be no change; however, the taxes on a realtor's fees will increase by 7%. For a $1,000,000 home, a tax increase of 7% on the amount of real estate commissions means that the typical realtor commission should increase by roughly 0.2065%.

Taking all of this into account, it is clear that the HST will have a negative effect on the market, but only slightly so. Depending on your asset class, you may even end up ahead. And taking into account the fact that the GST was lowered from 7% in 2006 to 5% today, consumers are definitely ahead compared to that time.

To calculate how the HST will affect a typical new house price, please visit macrealty.com to use the HST calculator. Remember though, there are many subtleties to the HST laws and its associated transition rules. An accountant will likely be needed to answer these more detailed questions.