Assessing the Implications of the New HST on BC Home Developers and Builders

In its simplest term, the new British Columbia Harmonized Sales Tax will push prices of home properties in Vancouver and other cities of the province. As a direct result of the implementation of this new tax policy, home property developers and builders are raising their concern over the possible negative effects on the overall viability of property investments, particularly in the short term.Property builders and developers are particularly concerned with the 12-percent harmonized sales tax that will be applied on all first-time home buyers of new home properties throughout British Columbia. The implementation of the harmonized sales tax in British Columbia and 4 other provinces in Canada comes at a time when major real estate markets are going through various stages of rebound or about to turn things around after several months of decline in property values and the number of home units sold. In fact, several stakeholders and marquee players in major real estate markets in British Columbia have expressed dismay over the timing of implementation of the new tax scheme.The integration of federal tax on goods and services and provincial tax will throw a monkey wrench on the brewing rebound of real estate markets that have been in doldrums for the past 12 months. The combined effect of the 7-percent provincial sales tax and 5-percent federal gross sales tax will definitely have a strong pressure on the prevailing price of new home properties throughout British Columbia. Major players and stakeholders in major real estate markets in the Province are closely coordinating with the government regarding the implementation of the new harmonized sales tax, particularly on new home properties.Buyers of new home properties with price tags under $400,000 are entitled to partial rebates. Under the harmonized sales tax, new homes priced at $400,000 or less will be levied an adjusted sales tax equivalent to 5 percent. Thus, homebuyers of new home units with prices above $400,000 will receive a maximum rebate of $20,000.Industry experts and analysts believe that small business owners are the main beneficiaries of this new harmonized tax scheme. While proponents of the HST cite the lesser documentation requirements under the new tax scheme, the specter of a marginal increase of 5% on the current tax system will definitely have a heavy toll on new home properties.The BC harmonized sales tax will also be applied on the closing cost and other cost items related to the home purchase. The effect of the 12-percent sales tax will have its full impact on new properties with prices above $400,000. For instance, for a new home property with a price tag of $600,000, the buyer will have to pay an additional amount of $42,000 under the new tax scheme. The home buyer is entitled to a tax rebate equivalent to $20,000. However, this does not yet include associated expense items for the subject home purchase under the harmonized tax regime. These include commissions, notary public fees, legal fees, etc.Home property developers and builders in Vancouver, Chilliwack and other cities in British Columbia would like to get the assurance of the federal and provincial government that appropriate safety nets are instituted to prevent the possible decline in sales as a result of the upward shift of new home property and real estate property prices.Despite the assurance of the policymakers on the positive effects of the new tax scheme, major players and stakeholders in real estate markets in BC are dismayed that such tax policy was implemented at a time when the overall situation in most markets remain volatile. They are reminding policymakers that home properties and real estates in most cities in British Columbia are one of the most expensive in Canada.