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Property Transfer Tax Changes Announced By The BC Government

On February 16, the BC government released its 2016 budget, and a part of the budget was the announcement of changes to the property transfer tax act.

In a nutshell:

  • No changes to the first time home buyer exemption limits except if they are buying a new home
  • All buyers – whether first time buyers or repeat buyers- are now exempt from paying PTT on purchases of NEW homes up to a maximum value of $750,000 (note: you are still paying GST on these new home purchases)
  • Buyer must be a Canadian citizen or permanent resident
  • There is a partial exemption for homes between $750,000 and $800,000
  • PTT charged on houses valued over $2M has increased to 3%. So any amount surpassing $2M threshold, the 3% applies to, not the whole amount. So if the house is $2.1M, the 3% will apply to the $100,000 above the $2M threshold.

A more in depth look…

Many people are concerned how these changes will impact the Vancouver real estate market. My take is that this is not going to have a major impact at all. The real estate market is driven primarily by emotion. The low rates, the foreign buyers, the assignment clause flips, the taxation changes and down payment requirement changes all have some sort of impact, but very minor effect overall…much less of an influence than the various news outlets lead us to believe. Emotion is what drives decision making.

When you ask someone why they bought a home, they are either in love and getting married, having babies and need more space, perhaps they got a raise, their business is thriving. I’ve even heard a few stories where a couple were out on a sunny day and an open house caught their eye.

When you ask someone why they sold or are selling their home, you hear that they believe they can time the market, that prices can’t go any higher, they have to move because of work. Perhaps they are getting a divorce or are facing health issues….again the underlying fuel of emotion.

We “felt” it was time to buy. We “felt” it was time to sell.

IMPACT

Let’s take a look at the exact impact of the tax changes. Let’s take a client who is purchasing a $4M home. In this scenario the increase in purchase tax is $20,000. If someone is in the market for a four million dollar home purchase, is twenty k really going to slow them down?

I think it is safe to say that there aren’t any brakes being applied to $2M sales, but instead it’s just an increase in revenue to help offset the decrease on the break the province is giving to people who are purchasing brand new homes up to $750k.

BREAK?

A first time buyer only sees an advantage if he is buying a brand new home. The exemption increases from $475k on a resale, to $750k on a new build.

As a repeat buyer you gain an advantage by buying new as you get the same break as the first time buyer, no PTT up to $750k purchase. That is about a savings of $13,000 for a repeat buyer.

The elimination of the PTT on new properties under $750,000 has also in my opinion, had another key impact. It has helped soften the blow caused by the increase in down payment rules that the federal government implemented earlier this month. For those that were looking to put 5% down on a property between $500k-$700k they are roughly in the same position as before the down payment rule changes thanks to this change to the PTT rules.

After February 15, if you want to put the minimum down payment possible down on a $745,000 property, it just rose $12,250 to a total of $49,500 which would be 6.6%. You would also have the PTT which would amount to $12,900 (1% of the first $200,000 and 2% of the balance).

In the above example the down payment went up, but if you were to buy a new build your PTT would be eliminated, and purchasing at minimum down payment would be easier for everyone.

You  can rest assured that sales centre representatives at these new developments are going to love this, and they will no doubt not wait to share this news with you. On that note, always remember to bring along your representation with you (Your Realtor) when visiting these sales centres. You need someone in your corner to represent your interests.

 

 

Written by: Aleem Peermohamed. An Accredited Mortgage Professional with over a decade experience in the financial services industry.

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