Friday's Globe and Mail had a string of interesting, even useful, real estate articles.
"Well, of course they did", you say, "Friday is the day they publish their real estate section."
Except these better articles were all in the Report on Business section. It was so full of juicy items it took me a few days to get around to writing this up.
With the wee summaries and links below, I quickly maxed out the character limit for Facebook and Twitter ... so you get a blog post. To wit (not to Tweet)...
"Rule changes make mortgages a moving target". Opens with a statement that all the new rule tweaks make "it harder for many Canadians to get a mortgage". Followed by a bunch of reasons why the new changes and restrictions are a bad idea. Towards the end of the article we get stuff more along our thinking: that the new rules help ensure that "the goal and dream of owning a home is balanced with the ability to repay..." A broker suggests the changes affect decisions for 10-15% of buyers. If he is right, I suggest that the new changes probably influenced 90% of those people to make better decisions. In other words, there are very very few people out there who have really good reasons for a 95% mortgage amortized over 35-40 years.
"How to play the low interest-rate game". Pretty solid advice on how to take advantage of the current low interest rates without losing your mind and taking inappropriate risk. My favourite quote (though I admit there are exceptions) "If you can afford to put down only 5 per cent, you can't afford the house".
"The $600,000 question". What do you get for $600k in various parts of the country. If you are just one happy puppy on some acreage in the boonies you can get a lot of house. If you want to step outside and stroll to every imagineable cultural, recreational, and commercial attraction, think smaller.
"The long, slow flip". Cindy Wennerstrom's business is "flipping" homes but she takes an interesting middle ground between the fast buy-reno-flip and the long term investment property approaches. She argues that her approach has risk and tax advantages.
If any of those sound interesting beyond my precis, follow the links and enjoy. Comments also most welcome. Please. Somebody. Comment. On something :-)
Showing posts with label taxes. Show all posts
Showing posts with label taxes. Show all posts
Monday, May 9, 2011
Thursday, March 26, 2009
Ouch. An attempt at clarifying the true impact of the new Ontario sales tax.
[Apologies if this post isn’t tightly edited. I’m trying to get my take on the whole “harmonized” tax thing out while it’s timely and (I hope) can clarify some of the misunderstandings out there. So I’m banging out a story at the end of a long day.]
To summarize:
• The harmonized tax will add a few thousand dollars to the cost of any home transaction if you factor in taxes on commissions, legal costs, moving costs, etc. Not nice, but not the massive impact implied in some stories.
• The tax WILL add an outrageous hit to an already nasty tax on NEW CONSTRUCTION homes.
• The rebates etc will help those buying less expensive homes and those with lower incomes. There is zero help for the rest.
• We have until July, 2010 to beat it or work on changing it.
• Has it occurred to anyone how much money gets sent to the government on a new-construction home versus a comparable resale home?
The story with a little more detail and embellishment:
On Wednesday, the night before the budget came down, I choked on my dinner while watching a TV news item on the impact of a harmonized sales tax on housing. After panning a number of lovely old Toronto homes, the reporter spoke to the camera and to a young couple standing in front of a central Toronto real estate office.
He showed them and the audience figures suggesting the taxes on a $745,000 home could increase by almost $47,000! The young couple went into cardiac arrest and the earth stopped spinning on its axis.
Digital Video Recorder to the rescue. I rewound and listened again. Despite all the visuals the word “housing” was generally modified by the adjective “new”.
Sure enough, the numbers being quoted were from a recent study done about and for the new-construction housing industry.
If, as I suspect, the young couple accosted on the street were actually hunting a resale home in the city somewhere, and even if they were going for the ¾ million dollar job, then GST, PST, or the proposed HST (“Harmonized” being a rather friendlier word than “combined” when describing taxes) does not apply.
The only direct impact of the combined tax would be on the commission paid by the Seller. Sellers currently pay GST on the commission. The new tax would add a little less than $3000 to the Seller’s cost on the above sample sale. Not insignificant; not a good thing in the current economy and housing market. But far from the $50k impact suggested.
Further hits would appear in services such as legal costs and moving costs associated with moving.
Tonight, the actual budget bomb was dropped. Harmonization was there, but so were a few “sweeteners” to help us swallow the medicine. It’s bad medicine, and if you are middle class or above in Toronto, you don’t get much sugar!
There are a few exemptions (kid’s clothes, diapers, etc.). There is the $1000 paid to you if you don’t make a pile of money (over $160,000 for a household), over the first year. The rest of the budget has some tax reductions at the lower income brackets.
And there is a rebate on new home purchases that will be likely be hyped up to Disney-esque proportions. Three quarters of the provincial portion (6% out of the 8% tax) on new construction will be rebated to buyers of homes under $400,000. Smaller rebates will come to those buying in the rather narrow bracket of $400-500,000.
This helps buyers of modest condos and townhouses and some homes outside of the higher-priced Toronto area.
But if you buy a new-construction home for more than $500,000 you get ... bupkus. Nothing. The $745,000 home in the first example will indeed have an added $47,000 tax hit.
Another thing that early reports have not emphasized is the effective date. July, 2010. So you have over a year to fret about this. And whine. And maybe there will be changes.
There will also probably some market-distorting rush to sign newhome deals before whatever magic date is selected for the tax to kick in.
Biased? Me?
With apologies to our builder and developer colleagues, this whole analysis has provided a related “aha” moment for me.
The vast majority of our business involves resale homes. While we see the appeal and benefits of a brand new house, and there are certainly situations where it is the best or only answer. We are, however, also aware of the issues and overall we prefer an “experienced” home. All of the “whys” may be grist for another post someday.
But we had never factored the tax story into our new vs. Resale comparisons. I have no objection to paying my fair share of taxes, but I tend not to seek out ways to pay extra tax.
It now occurs to me that when choosing between two equally appealing homes, one new and one resale, there is a huge tax difference. The cost of the new one involves a direct submission of 5% of the sale price (GST) to the Feds. After July, 2010 it will also involve another 8% to Queen’s Park. The resale home ... doesn’t. Back to that $745,000 house. In round numbers, we’re looking at sending the government $100 grand for the new one.
Ouch.
This is a first take. I may have further information or modifications later as more information is available. If the whole thing is as clear as mud, don’t hesitate to ask me to try again. And, oh yeah, I do have a dusty old MBA degree somewhere but I’m not a tax expert.
To summarize:
• The harmonized tax will add a few thousand dollars to the cost of any home transaction if you factor in taxes on commissions, legal costs, moving costs, etc. Not nice, but not the massive impact implied in some stories.
• The tax WILL add an outrageous hit to an already nasty tax on NEW CONSTRUCTION homes.
• The rebates etc will help those buying less expensive homes and those with lower incomes. There is zero help for the rest.
• We have until July, 2010 to beat it or work on changing it.
• Has it occurred to anyone how much money gets sent to the government on a new-construction home versus a comparable resale home?
The story with a little more detail and embellishment:
On Wednesday, the night before the budget came down, I choked on my dinner while watching a TV news item on the impact of a harmonized sales tax on housing. After panning a number of lovely old Toronto homes, the reporter spoke to the camera and to a young couple standing in front of a central Toronto real estate office.
He showed them and the audience figures suggesting the taxes on a $745,000 home could increase by almost $47,000! The young couple went into cardiac arrest and the earth stopped spinning on its axis.
Digital Video Recorder to the rescue. I rewound and listened again. Despite all the visuals the word “housing” was generally modified by the adjective “new”.
Sure enough, the numbers being quoted were from a recent study done about and for the new-construction housing industry.
If, as I suspect, the young couple accosted on the street were actually hunting a resale home in the city somewhere, and even if they were going for the ¾ million dollar job, then GST, PST, or the proposed HST (“Harmonized” being a rather friendlier word than “combined” when describing taxes) does not apply.
The only direct impact of the combined tax would be on the commission paid by the Seller. Sellers currently pay GST on the commission. The new tax would add a little less than $3000 to the Seller’s cost on the above sample sale. Not insignificant; not a good thing in the current economy and housing market. But far from the $50k impact suggested.
Further hits would appear in services such as legal costs and moving costs associated with moving.
Tonight, the actual budget bomb was dropped. Harmonization was there, but so were a few “sweeteners” to help us swallow the medicine. It’s bad medicine, and if you are middle class or above in Toronto, you don’t get much sugar!
There are a few exemptions (kid’s clothes, diapers, etc.). There is the $1000 paid to you if you don’t make a pile of money (over $160,000 for a household), over the first year. The rest of the budget has some tax reductions at the lower income brackets.
And there is a rebate on new home purchases that will be likely be hyped up to Disney-esque proportions. Three quarters of the provincial portion (6% out of the 8% tax) on new construction will be rebated to buyers of homes under $400,000. Smaller rebates will come to those buying in the rather narrow bracket of $400-500,000.
This helps buyers of modest condos and townhouses and some homes outside of the higher-priced Toronto area.
But if you buy a new-construction home for more than $500,000 you get ... bupkus. Nothing. The $745,000 home in the first example will indeed have an added $47,000 tax hit.
Another thing that early reports have not emphasized is the effective date. July, 2010. So you have over a year to fret about this. And whine. And maybe there will be changes.
There will also probably some market-distorting rush to sign newhome deals before whatever magic date is selected for the tax to kick in.
Biased? Me?
With apologies to our builder and developer colleagues, this whole analysis has provided a related “aha” moment for me.
The vast majority of our business involves resale homes. While we see the appeal and benefits of a brand new house, and there are certainly situations where it is the best or only answer. We are, however, also aware of the issues and overall we prefer an “experienced” home. All of the “whys” may be grist for another post someday.
But we had never factored the tax story into our new vs. Resale comparisons. I have no objection to paying my fair share of taxes, but I tend not to seek out ways to pay extra tax.
It now occurs to me that when choosing between two equally appealing homes, one new and one resale, there is a huge tax difference. The cost of the new one involves a direct submission of 5% of the sale price (GST) to the Feds. After July, 2010 it will also involve another 8% to Queen’s Park. The resale home ... doesn’t. Back to that $745,000 house. In round numbers, we’re looking at sending the government $100 grand for the new one.
Ouch.
This is a first take. I may have further information or modifications later as more information is available. If the whole thing is as clear as mud, don’t hesitate to ask me to try again. And, oh yeah, I do have a dusty old MBA degree somewhere but I’m not a tax expert.
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