HST affects housing market

By Marty Hope, Calgary Herald August 28, 2010

The harmonized sales tax recently introduced into British Columbia and Ontario has had an impact, likely short-term, on the resale housing activity in those two provinces, according to an industry survey.

An online survey conducted at the end of July by Royal LePage Real Estate Services shows that residents have misconceptions about how the HST affects real estate transactions.

When respondents were asked to provide examples of comments heard from buyers and sellers regarding the tax and its effect on the housing market, almost half of the comments (46.7 per cent) indicated that confusion about it continues even more than one month after coming into effect.

Among the most common responses to the survey's open-ended questions were that many home buyers incorrectly believe the tax applies to the sale price of resale properties.

About 44 per cent of the 765 realtors polled in Ontario and B.C. said the HST that took effect in both provinces July 1 is having the greatest effect on the cooling residential real estate market, compared to just 28.4 per cent who cited rising interest rates as having the greatest effect.

In all, more than 86 per cent of respondents said the HST is affecting their business somewhat.

"While we predicted that the prospect of rising interest rates would put a damper on the housing market, our agents are finding that the HST is actually having the greater impact on buyer behaviour, at least in the short-term" says Phil Soper, president and chief executive officer of Royal LePage.

The HST applies to the purchase price of a newly-built home, and fees for services and commissions associated with any real estate transaction, but it does not apply to the purchase price of resale homes.

Resale homes comprise the bulk of transactions in the Canadian housing market, and the majority of agents surveyed by Royal LePage indicated that new home sales account for less than 10 per cent of their business.

"We wanted to understand the impact HST has had since it was introduced, and what we found is that there is a need to better educate home buyers and sellers to ensure they understand when the HST is applicable," says Soper.

"According to our realtors in B.C. and Ontario, misconceptions about the HST are having an effect on the market in both provinces."

Nearly one quarter (24.1 per cent) of respondents in the Royal LePage survey say home buyers and sellers have a low level of awareness about how the HST applies to a home sale transaction, while 44 per cent say buyers and sellers are only somewhat aware.

"Realtors are there to help guide buyers and sellers through the often complex negotiation and closing process, so our take-away from this survey is that we need to do more as an industry to educate consumers about the HST," says Soper.

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