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I've decided to do something most real estate agents never even dream of: write my own content. It's not that agents are lazy. On the contrary, most
feel they're too busy to spend a couple of hours each month personally writing articles for their own websites or newsletters. Add to this the wide array of
wonderful marketing companies out there who can send out customized newsletters on an agent's behalf, and it's no wonder fewer and fewer agents author their own material
each year.
The problem with boiler-plate newsletters, however, is that they often fail to dig deep enough into what my clients actually want to see. Most people don't care
about general market trends or historical sales figures. They want to know what's happening right now, in their own neck of the woods, and how it affects their unique situation.
That's why I'll be sending out a fresh update every month or so, targeted at my own clients, to keep them abreast of things I feel they ought to know.
Feel free to pick and choose through any articles that interest you, and remember, if you ever want more information on any of the discussed topics (or anything pertaining to real estate), I'm only a phone call or email away. Happy reading!
-Steven Switzer
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Proud papa Steven Switzer with future Realtor, Jamie
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By now most Ontarians have heard about the Harmonized Sales Tax (HST). Most people probably suspect that (like most taxes) it isn't a good thing, but details have not been very forthcoming.
I thought it might help to clear up a few things about the new tax and how it might affect the real estate market.
On the surface, the 13% HST will replace the 8% Provincial Sales Tax (PST) and the 5% Goods and Services Tax (HST). Some people erroneously believe the impact will be
minimal since we were taxed at 13% before and we'll still be taxed at 13% with this new blended tax.
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However, many goods and services that were previously exempt from
one tax or the other will now be subject to the full blended tax, an increase of 5% or 8%, depending on the item or service in question.
New Homes
Without question, the greatest impact will be on buyers of new homes (or older homes renovated significantly enough to qualify as new). Previously, buyers only paid HST
on new home purchases, not PST. The new HST however, will apply the full 13% tax to the sale of the property (although there are some caveats to be aware of). Homes priced at $400,000
or less are exempt from the provincial portion of the HST (not that there are too many of those in the GTA these days). Actually, buyers of those properties must still pay the 8% tax but can then apply for a full rebate.
Buyers of homes priced between $400,000 and $500,000 will qualify for a proportional reduction in the HST. Any new home priced over $500,000 however, will be subject to the 13% HST on the full amount.
The HST will come into effect on July 1, 2010, but homes which close after that date may still qualify for HST taxation instead, depending on the date of the Agreement of Purchase and Sale (and possibly some other details of that agreement).
Resales
Resales are not directly subject to the HST, just as resales were not subject to PST (and the HST was usually buried in the seller's costs). However, many of the services associated with real estate transactions are subject to the
HST, which means those rising costs will be passed along to sellers and buyers. For example, real estate agents will pay HST on earned commissions after July 1, 2010, which means they
will have to charge more for their services. Likewise, sellers and buyers can expect to pay more for things like home inspections, legal costs, title insurance, and mortgage
insurance premiums. I threw some numbers together for a resale costing $400,000, and came up with a ballpark increase of $2,500 after July 1, 2010 (for all real estate related transactions). Nothing to sneeze at, but
still not the end of the world if you plan to buy a resale in the HST era.
Rentals
Renters will most likely be affected in the same way as buyers of resales, as landlords will also be forced to pass along the rising costs of renovations and maintenance. Almost
every service in the province is subject to the HST, and those increasing costs will trickle down throughout the real estate market.
Most experts seem to agree that the construction and renovation industry will be the hardest hit, as people planning cosmetic home upgrades will make other plans once the additional 8% comes into effect. What's worse, the HST might
serve to foster an underground trend in construction, as contractors and their customers turn toward under the table deals to avoid paying the new tax. That scenario opens the
door for a lot of sub-par work to be performed in the province, and further hurts those larger, more reputable construction firms who simply won't be able to compete.
In summary, anyone considering purchasing a newly constructed home should make every effort to get the deal completed before July 2010. I have no doubt that many buyers will
be caught off guard once the HST comes into effect, and I want to make sure that my clients are not among them.
For more information, please see the Canada Revenue Agency bulletin. You can also learn more from
these (negative but) informative articles:
TaxTips.ca |
CityTV article
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A friend recently posed the following question:
"If the market is so hot, why does supply seem so low?"
First of all, I must compliment his astute observation. Inventory is certainly getting tighter. Anyone who routinely searches MLS® for a certain area and price range
can testify to the fact that there just isn't a lot out there right now. Here's an excerpt from Toronto Real Estate Intelligence,
an excellent online resource for those seeking Canadian real estate market data:
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"The number of new listings posted the eighth consecutive decline from year-ago levels. New residential listings were down 8.9 per cent year-over-year to 64,167 units, the
lowest level for the month of August in five years. Fewer listings coupled with improved demand is drawing down inventories, the agency said. There were 212,227 homes listed
for sale in August, down 13.3 per cent from last year's levels."
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So the stats confirm that inventory is low. The question is "why?", and it's not an easy answer. First of all, while the global economy is certainly moving in the right direction,
it's been a slow, steady climb since the beginning of 2008. When the U.S. housing market tanked early last year, real estate markets in Canada and the U.S. witnessed an immediate
drop-off in monthly transactions. As a result, many (average) properties sat on the market for a long time. Part of the reduced inventory we're seeing now is simply the removal
from the market of those properties that weren't moving in earlier months.
Now add in a faster-moving market in which sales are up, and any inventory problems are compounded by the increasing demand:
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"We have experienced an increasing rate of existing home price growth in the GTA as sales have continued outpace 2008 results," said TREB President Tom Lebour.
"Consumers have remained confident in ownership housing as a long-term investment." Year-to-date sales, at 66,437 were up 4.5 per cent compared to the first
nine months of 2008. Average price, at $388,417 was up by almost 1.5 per cent.
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As the excerpt from Intelligence illustrated, sales are up and so are average prices. Not too shabby considering those numbers reflect the Toronto area, where the Land Transfer Tax
was doubled last year. In my opinion, buyers who previously sat on the fence during these economically troubling times are starting to realize that the market is picking up
again, and these savvy shoppers want to get in before prices escalate further. The bottom line: it's a good time to buy and a great time to sell.
If you have a question you'd like answered, don't hesitate to drop me a line.
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It's a great time to buy a home in Ontario, particularly if you've never bought one before. Both the federal and provincial governments offer wonderful incentives to help
turn renters into owners. Specifically, there are four opportunities for buyers to take advantage of in Ontario:
the RRSP Home Buyer's Plan, CMHC mortgages,
and the waiving of Land Transfer Tax and HST payments.
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Home Buyer's Plan (HBP)
Simply put, the HBP allows buyers to withdraw money from their RRSP's tax-free, for a period of up to 15 years. Anyone buying their first (principal) residence
is allowed to withdraw up to $20,000 from their RRSP in order to purchase that property (or $25,000 after Jan. 27, 2009). If your spouse or common-law partner is also sharing in the purchase, he or she
is also eligible to make the same withdrawal from their own RRSP. The money must be paid back within 15 years, so most people devise a financial plan involving a payment
of 1/15 of the total borrowed every year, in order to ensure the fund is repaid after the 15 year term.
Many people don't have $20,000 in their RRSP, which is fine.
If you have any funds available, they can usually be placed in an RRSP retroactively for past years in which you didn't contribute. It often pays to take out a
short-term RRSP loan to invest in your RRSP, as you can pay the loan back by cashing in that RRSP after 90 days. You can then use your tax refund to supplement your down payment.
Now you've provided yourself with a tax-free, interest-free down payment upon which to secure a mortgage! Thank you, federal government!
CMHC Mortgages
Before 1999, buyers seeking a mortgage generally had to have 25% of the purchase price to invest as a down payment. Then the Canada Mortgage and Housing Corporation introduced
a new kind of mortgage insurance which would allow buyers to secure a mortgage with as little as a 5% down payment. The mortgage costs more, as buyers must pay a small
monthly insurance premium in addition to the mortgage interest, but the bottom line is that thousands of people who previously couldn't afford to buy a property can now happily
do so with help from the CMHC. The same qualification process exists as for regular mortgages, except for the lower down payment.
Land Transfer Tax
The Land Transfer Tax is a calculated fee paid when ever a buyer transfers a property into their name. It's a sliding scale, with between 0.5% and 2% applied to different portions
of the property price. For example, buyers pay 0.5% of the amount between $0 - $55,000, 1% on the amount between $55,000 - $250,000, etc. (for more information see our
LTT Calculator). The good news is that the provincial government offers a rebate up to
$2,000 for first time buyers. Buyers must pay the LTT initially but can request a rebate within nine months from the date of transfer.
The municipal Land Transfer Tax levied in the city of Toronto effectively mirrors the provincial tax, doubling your payment. Fortunately, the City of Toronto also offers the same rebate.
HST
As discussed earlier, first time buyers are eligible to receive a $24,000 rebate on the HST (for homes between $400,000 and $500,000), and a full rebate on homes priced less than
$400,000. However, no rebates are offered on homes costing more than $500,000, so the best bet is to get a deal done before July 1, 2010.
If you have any questions concerning your opportunities as a first time buyer, please don't hesitate to give me a call.
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