They’re three little letters, but they pack a very large punch: HST. And with the April 1st changeover back to PST/GST racing toward us, there’s no question the on-again, off-again tax has been up front and central in the minds of homebuyers considering a newly built home. The big question: buy now or wait?
In our first issue of 2013, New Condo Guide chats with Mark Belling, president of Fifth Ave Real Estate Marketing, about some of the real facts and figures and why now is an excellent time to buy a new home.
Q Let’s get straight to the bottom line. Many people believe they’re going to save a bundle by waiting until the HST is history. How much difference is it really going to make if you put off your home buying purchase until after we revert to PST/GST on April 1st?
A The short answer is ‘much less than most people think’ — especially if this is your first home. Let’s assume a $525,000 home purchase at 3.1 per cent interest, a 25-year amortization and a five-year term, then compare three different scenarios.
Scenario 1 The best program available now is on new construction, is exclusively for first-time buyers, and is only going to be available until April 1st of this year. If you complete your home purchase before April 1st, first-time buyers are eligible for a provincial government tax rebate of up to $10,000 — which translates into a saving of about 1.9 per cent on the purchase price.
It’s important to realize, though, that this homebuyer’s bonus comes into effect after your purchase completes, so your mortgage amount is not reduced directly. However, if you structure your loan agreement with this in mind, when the money arrives, you can immediately make a lump sum payment to reduce the amount of your mortgage principal.
Scenario 2 If construction on your new home starts prior to April 1st but the sale and completion of construction occur after April 1st, you’ll still pay full HST even if the home is purchased after April 1st. In this case, there will be a sliding-scale formula applied based on what percentage of the home is completed pre-April 1 2013 and post-April 1, 2013.
Scenario 3 Buying a new home that starts construction after April 1st means you’ll save approximately two per cent on the effective PST portion that you would currently pay as part of the HST, however you won’t be eligible for the homeowner bonus. So on homes under $525,000, it can mean a saving of up to $10,500 — which is almost the same amount as the current rebate.
Builder’s costs will also go up on these homes as they will no longer get HST building credits and must revert back to old PST credits, making construction costs higher and possibly balancing out any savings for the end consumer.
Q In other words, there’s no compelling reason to wait until HST is repealed?
A I don’t believe any of these scenarios mean you should hold off the purchase decision if you find the right home. All we’re talking about is a range of savings options depending on who you are as a consumer. Even in the second scenario, which is the least favourable to consumers, what does waiting really mean in terms of mortgage payments?
The potential $10,000 rebate is no longer available other than a slight tax benefit depending on what percentage of the home was built prior to April 1st. So, based on the new federal government regulations that reduce maximum amortization from 30 to 25 years, your extra mortgage payment will equate to roughly $50 dollars a month. Think of it this way, simply by drinking 2.3 fewer lattés per week you can still own the home of your dreams.
First-time buyers, in fact, would be better off purchasing and completing on new homes priced under $525,000 before April 1st. Not only do they get up to $10,000 in bonus money back from the provincial government — subject to qualification, of course — but they also eliminate a number of risks.
Q What kind of risks would a first-time buyer avoid by purchasing now?
A First of all, interest rates are expected to rise in 2013. Secondly, Central Credit One, the Canadian Real Estate Association, and CMHC are all predicting prices will rise two to three per cent in 2013, skewed mostly to the second half of 2013. So, as a buyer, you’re far more likely to get a great deal now than when economic conditions shift towards a seller’s market. And finally, if you see something you like today, it may not be available in three months. By waiting to buy after April 1st, first-time buyers will negate any financial advantage they had and risk losing their dream home.
Q Any other reasons to buy before April 1st?
A Plenty. We’re living in the lowest interest rate environment in anyone’s history. We live in the one of the world’s most beautiful, most livable regions — and that’s not just my bias but is confirmed by experts all around the globe.
Right now, you also have time to shop and compare among more new home options than any time I can remember. If you find 12 different homes you like, you can take your time and eliminate ones that don’t make the cut, zeroing in on the ones that do. So not only do you have choice, you’ll likely end up owning the near perfect home, at the lowest mortgage interest rates in the history of your life. But this homeowner’s shopping bonanza will only have a short window — the longer you wait, the fewer choices you’ll have. So why wouldn’t you buy new and buy now?
Visit Fifth Ave Real Estate Marketing at http://fifthave.ca/projects/now-selling for a list of current projects.