Tag Archives: harmonized tax
July breaks nine-month decline in home prices
By Tony Wong – Toronto Star
John Perciasepe couldn’t have picked a worse time to open a sales office when he debuted his new home site in Markham last fall.
Stock markets globally had seized and consumer confidence was at an all-time low.
“We were worried, to say the least,” said Perciasepe of his Glens of Berczy Village project in Markham, which features 18 detached homes. Low-rise homes, particularly the more expensive detached units, had fallen out of favour among cash-strapped consumers.
“It was a ghost town on site,” he said. “There was zero traffic.”
This was not good news for the small family-run business started by his father, Jim.
But what a difference a year makes. By April, the developer had only sold one of the houses, which are priced from $499,900. In the past two months, he sold five.
“The turnaround has been incredible,” said Perciasepe, who credits low interest rates and consumers worried about the impact of a harmonized tax next year for bringing in sales.
According to a report by Statistics Canada yesterday, prices for new homes across Canada increased 0.3% in July, ending a streak of nine consecutive monthly declines.
The increase followed a 0.2% decrease in prices in June and beat market expectations for a 0.1% decline, according to StatsCan.
The big difference in the Toronto market seems to be that consumers are buying low-rise homes again, as the love affair with condos seems to be on the wane.
Toronto buyers are purchasing low rise homes in greater numbers again
In July, total new home sales were about on par with July 2008 according to figures from RealNet Canada Inc. The difference is that consumer preference has shifted from condos to houses over the last several months, with sales more than doubling year over year.
After three years of elevated condo sales, the market is “rebalancing” toward more low-rise homes, said the Building, Industry & Land Development Association.
Nationally, prices increased the most in Vancouver, Hamilton, Windsor and Calgary.
Despite the positive indicators, economists remain cautious.
Moody’s economist Jimmy Jean said in a note yesterday that he thinks underlying demand will remain weak because of rising unemployment and falling incomes.
He figures the current sales surge is due to pent-up demand built during the two quarters following the financial crisis. A situation where rapidly deteriorating credit quality drives more losses at banks is possible, possibly prompting them to tighten lending standards.
Comment: Pent up demand? After so many people bought over the past few years, what demand is pent-up? This is fairly normal, people need to buy and sell. There is a bit of a bump since there was nothing going on in winter and early spring, but that is it. Spread the numbers out a bit and we have a normal year. Take some record numbers from the summer and add them to January and February and watch how it works out to what we should expect. And mortgage rates are not going to hit 10% tomorrow, so this is not sale being pulled forward either. Maybe stop drinking the bad-news-koolaid and stop to realize that maybe everything really is just okay.
In such a scenario, Canada could face a slow and sluggish recovery, said Jean.
“We do not foresee enough strength in household finance to sustain a robust housing recovery,” said Jean.
Comment: Fine, noted. I do see enough strength. And I am not the only one!
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HST looms over real estate sales
Harmonized Tax; New tax will add thousands to closing costs
Emily Senger, National Post
Just as the Toronto real estate market begins to recover, realtors and home builders are worried Ontario’s new harmonized sales tax could send sales plummeting again.
The number of home sales in the GTA in the first half of May was up 3% over the same period last year, after a series of year-over-year drops, the Toronto Real Estate Board said yesterday. The average price was $399,811, about the same as last May.
“We’re out of the trenches for sure,” said Jason Mercer, senior manager of market analysis for the board.
But the harmonized sales tax looms on the housing horizon. The tax will come into effect in July, 2010, combining the 5% GST and 8% PST into one 13% tax. The HST will apply to new homes and to all home closing costs, creating thousands of dollars more in taxes.
Currently, new homes are exempt from PST. Under the HST, new homes worth less than $400,000 will qualify for a 6% tax rebate, but new homes worth more than $500,000 will be subject to an additional 8% tax.
This would mean an additional $30,000 on a $500,000 home.
The HST will hit new home buyers in Toronto harder because real estate prices are higher here, Ontario Homebuilders Association president Frank Giannone said during a meeting with the National Post editorial board.
“A $500,000 new home in Toronto doesn’t get you much,” said Mr. Giannone, who is also president of the Fram Building Group.
Mr. Giannone said the HST is a good idea, but current plans mean the entire purchase price is taxed once the $400,000 threshold is reached, and that could discourage middle-income earners from buying a new home.
“If you don’t have your own place yet, or you have your own place and you’re planning on moving up, you’ve hit a wall,” Mr. Giannone said.
Only 7% of home buyers will be affected by the new tax, said Alicia Johnston, spokeswoman for the Ontario Ministry of Finance.
The HST may only apply to new homes, but closing costs on all homes will be hit with the 15% tax.
This will add approximately $2,000 extra in taxes per sale for costs such as home inspectors, lawyers and real estate commissions, said Toronto Real Estate Board chief government and media relations officer Von Palmer.
The additional $2,000 could hinder buyers who already struggle to save enough for a down payment, Mr. Palmer said, adding new taxes are not what the industry needs during a recession.
“There is never a good time for a new tax, but this is bad,” Mr. Palmer said.
He suggested the closing costs be exempt from the HST, but the government isn’t considering that option.
“We can’t exempt everything, otherwise it wouldn’t be a harmonized sales tax,” Ms. Johnston said.
Not everyone in the Ontario housing business thinks the HST means gloom and doom for the housing industry in the GTA.
“The HST is one factor that will impact sales next year, but it is only one of many factors,” said Ted Tsiakopoulos, regional economist for the Canadian Mortgage and Housing Corporation.
The Canadian Mortgage and Housing Corporation predicts sales in Ontario will pick up next year by 4.1% for resale homes and 1.9% for home starts.
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Housing market improves
Harmonized tax a worry for analysts
Eric Lam, Financial Post
Canada’s slumping housing market is showing signs of stabilizing, but the coming Ontario harmonized tax will cause problems for builders and prospective homeowners alike, analysts say.
Toronto’s usually oversaturated condominium market has also begun to tighten, the first hints of a turnaround in 2009.
“The rise in demand, combined with fewer new listings, has restored a better balance to the market,” Scotiabank analyst Adrienne Warren wrote in a new report on Canadian real estate trends.
Ms. Warren noted a healthy pickup in home sales through the first part of the year, coupled with a drop in the national new-listings-to-sales ratio to 2.2 in March from a peak of 2.7 last November as reason for cautious optimism.
Ms. Warren has also cut Scotiabank’s 2009 expected housing starts to 140,000, down from 155,000 in February.
“Buyers, especially first-time, are being lured by historically low mortgage rates, greater affordability and [overall] increased supply,” she wrote.
As well, Ms. Warren suggests the “winter deep-freeze” in new condo sales is beginning to thaw.
“Several major developers, including in both Toronto and Vancouver, reported sharply higher sales volumes in March,” she wrote. “This mirrors the improvement in the broader real estate market.”
TD analyst Pascal Gauthier also expects Toronto’s condominium market, in the midst of a “cyclical downturn,” to stabilize and begin to recover before the end of 2009.
“Is the Toronto condo market either experiencing or headed for a crash? Our short answer would be no,” Mr. Gauthier wrote.
While many analysts believe there are too many condos under construction in Toronto, Mr. Gauthier says the numbers are falling back to reasonable levels.
Some 24,000 units were built in 2008, but the city is only on pace for about 18,000 units this year.
Mr. Gauthier expects that figure to top out between 11,000 and 13,000 units.
Meanwhile, the new Harmonized Sales Tax (HST) introduced by the Ontario government in its budget in March is also a major cause for concern.
The proposed tax, which will merge the PST and GST into a flat 13% rate, is set to be introduced on July 1, 2010.
“[We are] likely to see a front-loading of new condo sales between now and then, in effect displacing some sales that would have otherwise occurred later,” Mr. Gauthier wrote.
However, BMO Capital Markets analyst Douglas Porter sees the HST having even more far-ranging effects on the market.
“Raising taxes on a product that is often considered an investment, such as housing, is simply not good policy,” he wrote in a special report on the new tax.
Currently, new homes face a 5% GST but no PST. There is also a 1.8% GST rebate for houses less than $350,000.
Beginning July 2010, the HST will be applied on all new homes. Housing costing less than $500,000 will be eligible for as much as 6% in tax rebates, but anything priced above that gets the full 13% tax.
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Contact the Jeffrey Team for more information - 416−388−1960
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