HST Deadline Headlines… had enough already?

Hey, had you heard?  HST is coming…

The HST deadline looms large, so I am going to assume that everyone knows the HST is coming July 1st.    I mean, how could you not? All of those screaming headlines, ‘Buy Now and Beat the HST!’ quite frankly are a little patronizing aren’t they?  Yeah, sure, we’re guilty of it too. It’s hard not to fall back on scare tactics to imply a sense of urgency as this deadline approaches. But it occurred to my wife and I as we were perusing the latest editions of local real estate magazines last night that suggesting that a buyer hasn’t already considered their timing is not really giving folks a lot of credit.  Furthermore, these headlines seem a little short-sighted if we think about Life After HST.

In theory, if everyone ‘Buy(s) now before the HST’, us realtors and developers would be pretty screwed come July 1st.   The smart ones already have a plan in place to ensure that Life After HST is still worth living if they have new product to sell.  Because the fact is there are still going to be buyers out there after July 1st looking at new homes.  After July 1st, people will still need to move, have babies, relocate, downsize, upsize, whatever.

So, let’s talk turkey… what will the impact of HST be on new housing in the real estate market?  Here’s what you need to know…

HST Questions

The Facts

Effective July 1, 2010, BC will adopt a Harmonized Sales Tax (HST), combining the 7% Provincial Sales Tax with the 5% federal Goods and Services Tax for a single sales tax rate of 12%.

The effect of the HST will also be to introduce a new tax on most services provided by GST/HST registrants in BC. As such, service-providers like REALTORS®, home inspectors, and appraisers will be required by government to collect and remit 12% HST on their fees.

The HST only applies to “new” residential housing; used (i.e., resale) residential housing is not subject to HST.

To offset the increase in costs, the Government of BC plans to offer a partial rebate of the provincial portion of the HST for new (and substantially renovated existing) housing to ensure that new homes up to $525,000 should not cost the purchaser more after July 1st (some conditions apply), while homes above $525,000 will receive small increases until the maximum rebate of $26,250 is reached.

Net Tax Implications

HST Calculator (click and scroll down to the How much tax will I pay on new housing before and after July 1? section)

Total Sales Tax Payable on New Homes, courtesy of Government of BC

New Homes priced up to $525,000After July 1st, when a builder or developer builds a home they will save approx 2% on PST on building products, which (in theory) is passed onto the buyer via lower price point.  The buyer then pays the new HST tax which in the end will increase the home tax by an additional 2% but the net result would not produce a higher price for the home.

New Home priced over $525,000

Once the home exceeds $525,000, the HST tax becomes more burdensome for new home buyers price thresholds.

Assume you purchase a home for $740,000 in October 2010 and the home was started after July 1st, 2010. Here are the comparisons of pre purchase and completion before July 1, 2010 and completion and full build after July 1st.  With the rebates, the total difference in the new home cost is about 1.1%.

HST Calculator, $740K Home

However, if a new home is completed 90% or more before June 30th but purchased after, the scenario changes because the builder has already paid the 2% PST on the materials.  So the net effect of HST will be further lessened by an additional credit.

Conclusion

Due to the size of the investment you are making, buying real estate and assuming a mortgage has huge implications on day to day live.  The introduction of new taxes is always disconcerting, especially when looking at their impact on large purchases.  Just remember, when GST was introduced the market did in fact keep going, once everyone understood the new tax and how it worked.  HST will be the same. Today is one of the best times to buy real estate in Kelowna because of the high level of active listings on MLS, low interest rates and the HST fear all builders and buyers have.  At the end of the day, the bottom line is still the same… buy when you can afford to, not when you think the ‘best’ time to play the market is.

Buy with Confidence!  Contact our Buyers Specialist, Sarah Zimmermann for a fresh perspective on Kelowna neighborhoods and choosing the right home for you!