Property Transfer Tax
Ask anyone that doesn’t meet the maximum thresholds for exemptions & they will tell you this is a huge burden that leaves them dipping into down payments or settling for less in a home that they purchase. In Greater Vancouver (Burnaby / New Westminster / Coquitlam etc) where we see some of the highest housing prices in Canada, this tax, charged at a rate of: 1% on the first $200,000, 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, & 3% on the balance of the fair market value greater than $2,000,000, is a massive source of revenue for the provincial government. Especially since the value of our real estate has soared so far beyond the values in the late 1980’s when it was introduced. It has been as high as $1,000,000,000 dollars for a given year.
The revenue generated on an $800,000 home is $14,000. As most of us know, these days $800,000 doesn’t get you the same class of home that it once may have. In fact, it’s fairly middle of the road & in many areas wouldn’t even cover the cost of a lot with a tear down house. Although the subject is addressed periodically, the tax doesn’t affect enough of the population to warrant a huge public outcry & therefore it tends to get overlooked. But could it be effecting us more than we see on the surface? If a buyer, didn’t have to shell out that money, the affordability of a home they would like to buy goes up.
Alternately, that money could be spent on renovations, new appliances, landscaping etc. Now we can start to see how although the government may see an adjustment in direct revenue, many home sales indirectly employ carpet layers, hardwood floor refinishers, electricians, plumbers, carpenters, roofers, appliances sales people, delivery companies, hardware stores, landscapers, painters, kitchen cabinet makers etc. The list goes on & on of people that through the jobs they get hired to do, would benefit from a home buyer feeling a little more flush after the cost of closing on a new home & those trades, sales people & stores will end up paying income tax on the revenue they generate…..allowing them to go out & upgrade their home or get into the market.
How would it effect housing starts?
Would we see more people commit to building knowing that a buyer down the line could better afford that new home? Opening the door to a busy housing market benefits a huge segment of the population both directly & indirectly. For further information on Property Transfer Tax exemptions please refer to the provincial government site. Until the rules are adjusted, I recommend you make sure when you get qualified for a mortgage & before you head out to buy an real estate so you have a clear idea of what the closing costs add up to. As a Realtor, I would rather help you find a home that you are financially comfortable buying so that the day you get the keys, it’s time for a celebration & not budget worries.