What effect will the HST have on a house buyer’s decision making?
October 29th, 2009The Province October 29, 2009
Question: What effect will the HST have on a house buyer’s decision making?
The HST will mean higher final costs for some new home buyers, namely those purchasing more expensive new homes. The final impact, however, will not be as large as the additional 7% provincial portion of the HST.
The province is providing a $20,000 rebate to offset the impact of the HST. Taking the example of a new home priced at $550,000, the additional HST will be $18,500 (7% of the price less the $20,000 rebate).
This, however, is not the net result. When the HST comes into effect, PST will no longer be charged on all the materials used to build the house. The BC Ministry of Finance estimates that this ‘embedded PST’ amounts to 2% of the final cost of a new home. With the HST in place, builders will realize these savings and be in a position to reduce selling prices accordingly. In this example, the embedded PST amounts to $11,000. Therefore with PST removed, the net tax increase from the implementation of the HST on a new $550,000 home will be an additional $7,500 in tax.
The reason we can be confident the savings will be passed on in your question when you suggest that, given the (tax inclusive) price difference between a new and used home, “buyers will flock to buy used homes.” It is precisely this difference that will act as a powerful incentive for builders to pass on the PST savings so that their homes are as competitively priced as possible.
It should be noted that the home building industry believes the 2% figure is too high and that embedded PST in a new home is actually around 1.6%, meaning somewhat smaller savings and price reductions. The home building and real estate industries are currently working with the provincial government to explore measures to reduce the tax impact of the HST. One proposal is a higher rebate threshold or at least a rebate that recognizes regional price differences. Another option would be to phase out the property transfer tax on new homes.
Mark Fidgett | 604-273-2002
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