Effects Of The HST On The Toronto Condo Market

Looking ahead to next year, condo buyers in the greater Toronto area need to begin considering the effects of the upcoming 13% Harmonized Sales Tax (HST), scheduled to go into effect in July, 2010.  This new tax represents a combination of the 5% national Goods and Services Tax (GST) and the 8% Provincial Sales Tax (PST) and is intended to simplify taxation in general.  The actual impact of the HST, however, will be an additional tax being levied on different aspects of the real estate market.

Effects of the HST on new condo purchases

Although nobody knows yet what the full effect of the HST will be on real estate in the greater Toronto area, what we do know is that real estate transactions will be subject to taxation via the HST in ways they haven’t been previously.  For instance, new condos will be subject to the 13% HST, with the tax being assessed on the selling price of the property.

Under this new system, new condos valued at less than $400,000 will be eligible for a tax rebate of 6%, but new condos that sell for $500,000 or higher will have to pay the HST.  In theory, then, buyers can avoid the HST by purchasing condos valued at less than $400,000, but the reality of the real estate market in Toronto is quite a bit different.

Real estate prices are substantially higher in Toronto than in other areas, making it difficult (if not impossible) to find a reasonably nice new condo for less than $400,000.  A quick look at the listings on the market today will show very clearly that new condo prices are much more likely to be at least $500,000 and in most cases go even higher.  So for all practical purposes, buyers in the market for a new condo will have to take the HST into account when it comes time to determine how much they can afford to buy financially.

Buyers who are set on purchasing a condo but are concerned about the new HST have two options to consider:

1.  Make their new condo purchase before July, 2010, when the HST goes into effect.

2.  If purchasing after July, 2010, choose to purchase an existing condo property rather than a new condo property.

If a condo purchase is something you are considering, we strongly recommend you talk with a qualified realtor sooner rather than later so you can plan your purchase accordingly.

Effects of the HST on the broader real estate market

The HST is not just applicable to new homes and condos, however; it is also set to be applied to the closing costs of all real estate transactions.  This means everything from closing lawyer costs to home inspection costs to real estate commissions and the like will all be subject to the HST.  For most buyers this can quickly add up to an amount of $2,000 or more, making it even tougher to afford the purchase of a real estate property.

Real estate professionals in the greater Toronto area are concerned about the impact of the HST in these cases, especially when it comes to first time buyers and middle income buyers looking to move up in the value of their property.  In some cases the impact of the HST on closing costs could have a significant effect on whether or not someone is in a financial position to afford to purchase a real estate property.

While the HST will definitely have an impact on the real estate market in the greater Toronto area, most local realtors believe it will not be disastrous.  With proper planning and the prospect of negotiating these costs as part of sales agreements, most realtors believe the market will continue to grow and prosper throughout 2010.

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