The Province of Ontario has just announced that it is extending the land transfer tax refund for first time buyers of newly constructed homes to now include resale homes. This means that first time home buyers can now save up to $2,000 on a resale home purchase. The legislation for this rebate has not yet been passed, but any first time home buyer that enters into an "agreement to purchase and sale" on or after December 13th, 2007 is entitled to a rebate of up to $2,000 once the legislation is passed.
The City of Toronto has also up dated their new land transfer tax so that first time home buyers should not have to pay the land transfer tax on the first $400,000 of their home purchase at all. Previously any first time home buyer who is buying a home that is priced over $400,000 had to pay the full tax up front and then get a rebate for the tax paid on the first $400,000. Under their new system, which they hope to have in place before Feb 1st 2008 when the tax starts, first time home buyers will be able to pay only the tax owing on the balance of the purchase price minus $400,000.
Thanks to the efforts of the Toronto Real Estate Board and the general public, that lobbied the municipal government, the City of Toronto land transfer tax has been postponed until after the provincial election in October. There was a narrow win of 23 votes to 22 in favour of postponing a decission on this proposed tax.
Now we will all have to lobby the Ontario government to try and convince them that Toronto needs some financial help to keep it afloat, in order to avoid the real estate tax being passed shortly after the election is held.
Real estate in Toronto has remained a very hot market, however an increase in land transfer taxes would have a heavy effect on home values in the City of Toronto. That said anyone living just outside of the Toronto city boundaries might see a marked increase in their home's values.
Toronto is proposing it's own land transfer tax on all properties sold in Toronto. This is on top of the existing Land Transfer Tax that is levied by the Ontario government. Under the powers that were recently given to the City of Toronto, under the new City of Toronto Act, you could be required to pay an additional 0.5% of the purchase price in the form of a land transfer tax if you purchase a home in the boundaries of the City of Toronto.
This means that the average home (approx. $380,000 in Toronto for 2006) will cost an extra $1,900 that can not be put into the mortgage, according to the Toronto Real Estate Board. However, the average sale price for a home in February, in the central districts on the Toronto MLS® system, was $504,381 which would mean an extra tax of $2,521.91.
So how is this likely to effect your home's value? It could undermine the
Toronto real estate markets. If you are in the upper end of homes the effects may not be
initially visible, although it will make homes outside of the Toronto boundaries a lot more attractive. However, if your home is best suited for a first time home buyer then this will hit your bottom line.
A large number of first time home buyers are purchasing their home with only 5% down and a 95% mortgage. Even with this amount of leveraging they are often pressed to make the 5% and all of their closing costs. Some buyers are even getting 100% mortgages. If the buyer for your home (asking $300,000) has to take $1,500 out of their down payment to cover extra closing costs this will decrease their buying power by $30,000 (if $1,500 = 5% then 100% =$30,000). Since this will effect all homes and all buyers this is
likely to decrease the value of your home by 10%.
You will also see fewer home sales as people who are using the 100% mortgage programs will have to wait longer to save up their closing costs. This could see a trend to have the seller paying for the buyer's closing costs, like you see in the USA sometimes, however that may be seen as a form of mortgage fraud depending on how you interpret the payment.
This effect on lower cost housing may dramatically effect the second home and luxury home markets. As people may need to stay in their "first step" home longer in order to save up the equity to pay for the extra closing costs. Which could take a long time if their property value drops 10% due to the introduction of this transfer tax. This could lead to a higher percentage of 95% mortgages on second home which could cause the prices in those markets to also fall by as much as 10%.
The bottom line is that a simple
0.5% land transfer tax will undermine the affordability of homes in Toronto, which is already one of the highest priced cities in Canada. Property values will get undermined, along with affordability, causing your property to lose value, which will decrease the number of sales in the Toronto area.
Studies have shown that every resale home causes around $27,000 in spin off spending. This would be for anything from new appliances to renovations. All of which generates taxes as well as boosting the economy. If the number of home sales decreases because of a newly created tax then the Toronto economy will be effected as well as the taxes that are generated through those purchases.
So what can you do? Send an email to Mayor Miller,
here, to let him know that you do not approve of this tax. Also, contact your local councilors and let them know. You can find your councilor's contact information at the
City’s Councillors web page.
