This article examines the issues surrounding the effects of the BC Harmonized Sales Tax (HST 12%) on pre-sale BC homes and pre-construction Vancouver real estate. In addition, it also talks about the resale BC property markets and how they may be influenced by the 12% HST on new homes. Lastly, the article takes a closer look at the implications of the BC HST on first time home buyers looking to get into the market in addition to the overall increase in costs associated with home ownership in British Columbia.

What are the Implications of the British Columbia Harmonized Sales Tax on New Presale BC Real Estate and Pre-Construction Vancouver Homes?
With the introduction of the new 12% blended tax in British Columbia, the increase in 7% on any new pre-construction Vancouver home or presale BC property is daunting to any pre-sale home buyer. Because of this, home builders and industry analysts predict a big drop in presale condos being sold and pre-construction Vancouver homes selling. The BC Harmonized Sales Tax 12% HST also affect homebuilders and developers who may or may not be able to seek adequate construction financing for large scale projects, simply because fewer homebuyers are willing to pay the BC HST 12% tax on a new home. Therefore, the presale and pre-construction Vancouver real estate markets will simply run dry and the days of flipping properties by amateur investors will likely be over. What we may see is an increase in sales volume from the resale Vancouver and resales BC property markets. With the BC HST 12% tax only applicable to new homes and new Vancouver construction projects, many homebuyers will seek recently completed homes or resale Vancouver real estate in which the harmonized sales tax has already been applied to and paid for by the original home owners. Also, resale B.C. and Vancouver homebuyers seeking new properties may switch their focus to re-sale real estate that is either just completed by another buyer or up to five years, so you will see an increase in resales for these types of homes. Therefore, the resale Vancouver and BC housing markets should top those of the presale and pre-construction real estate markets because of the implementation of the HST BC Harmonized Sales Tax simply because homebuyers can save the extra 7%, especially on properties that are costing more than $400,000. In any case, resale BC homebuyers will be looking to reduce their HST tax burden when purchasing the largest asset in their lifetime, as the new tax can add thousands of dollars to any new home purchase. Therefore, the re-sale Vancouver property and BC real estate markets throughout the province will see an increase in sales volume in the resale property market after July 1st, 2010 when the harmonized sales tax comes into effect. As a result, the once booming presale Vancouver condo market as well as the pre-construction BC real estate markets will be much slower and maybe even non-existent as homebuyers want to skip the HST Harmonized Sales Tax burden on their purchase of residential or recreational property. One thing to remember though is that resale homebuyers will need to pay a bit extra on closing costs such as building inspections, property inspectors, real estate appraisals, renovations, legal/notary fees and other fees as those are subject to the new BC HST of 12% tax.

Implications of the BC Harmonized Tax on First-Time Home Buyers of New Property
In many cases, first time homebuyers in Vancouver and in BC are already behind the gun when it comes to purchasing new property and homes. British Columbians on average, pay the most on housing out of anyone in Canada. It is said that more than 75% of all after tax income goes towards housing and our homes here in BC. What’s frightening is that the BC and Greater Vancouver housing affordability issues are not getting any better. With the introduction of the new BC HST harmonized sales tax coming into effect July 1st, 2010, Vancouver first time home buyers will be out of luck when it comes to purchasing new property and the costs associated with closing and owning the home. Firstly, there is a partial HST rebate for first time home buyers in BC and in Greater Vancouver. However, this only applies to new properties that are at or under $400,000. Upon our last analysis, only 25% of all the total new homes (all of which are small studio or one bedroom condos in Downtown Vancouver), are below the $400,000 mark, which means that the majority of first time home buyers seeking new homes over $400,000 will be hit with the new 12% HST BC harmonized sales tax upon closing. This represents 7% or higher taxes on new construction homes, making affordability for first time home buyers in BC and in Greater Vancouver specifically even worse than it is today. Take for instance a Vancouver first time home buyer who wants to buy a $500,000 two bedroom and two bathroom condo because they want to start a family or have a guest suite or work from home. This $500,000 new Vancouver home will cost approximately $8,000 more for only the purchase price. This does not include the property transfer taxes. This also doesn’t include the increase in closing costs including notary, legal, appraisals, valuers and other professional inspectors required which are also subject to the new BC harmonized sales tax. And don’t forget, once a BC or Vancouver first time home buyer closes on their new property having paid their 12% HST, it firstly doesn’t mean that their new home has increased in value by 12%, but also, secondly, the cost of home ownership, maintenance, upgrades, renovations and basic living costs associated with owning a home also goes up, as all of these goods and services will be taxed at the new 12% HST BC Harmonized Tax rate. Unfortunately, there is no good news regarding the new BC HST for first time home buyers. The effect can be tragic, as many first time home buyers in the Greater Vancouver real estate market will never get the chance at home ownership. Affordability is already an issue, and with the new 12% HST tax on top of the highest and most expensive property markets in all of Canada, first time homebuyers will suffer the most when it comes to costs on a new home. Therefore, the British Columbia HST is bad news for first time homebuyers and will be in effect starting July 1st, 2010.

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