By Henry Choo Chong
The opinions and views expressed herein are those of the author and not those of Resale Home & Condo Guide. New Condo Guide does not necessarily endorse or encourage any specific tax strategies. Please consult a tax professional for advice specific to your particular situation.
My wife and I would like to get into the real
estate market before it becomes unaffordable. We have saved $10,000 for a down payment. We have above-average salaries but have been working only for the past three years. Is this the right time for us to buy?
Joanne and Jake, Ajax
As we leave behind the financial crisis, economic slowdown, stock market and even real estate declines, things are looking brighter for many Canadians. Canada has survived the recession, spending is up, stock markets have arguably rebounded and the real estate market has shown price and sales increases.
Many economists predicted real estate price declines, and few expected price increases and such a quick recovery. Homebuyers who were counting on further price declines may have been kicking themselves. How long will this continue, you ask? It’s anyone’s guess.
Like the impact seen with the July 1, 2010 introduction of the Harmonized Sales Tax (HST), some experts expected changes to mortgage regulations announced in January 2011 to cause a short-term spike in activity in the first few months of last year.
The 13-per-cent HST was added to new homes priced at more than $400,000 and many services that were previously not subject to the former eight per cent Provincial Sales Tax (PST). Services facing the HST include: real estate commissions, legal fees, accounting and tax fees and many others.
Finance Minister Jim Flaherty has given notice he is concerned about a potential overheating of the real estate market. Borrowers must meet the requirements for a five-year, fixed-rate mortgage, even if they plan to choose a shorter term and lower rate. In addition, Canadians can now withdraw in refinancing only 85 per cent of their home’s value, down from 90 per cent, while down payment requirements remain at five per cent for primary homes and 20 per cent for investment properties. Some experts feel these changes may leave some first-time buyers sitting on the sidelines.
However, these issues should not be the primary factors to influence your decision to buy. Some considerations to reconcile before making the plunge include:
» How much of a house can you afford to purchase? Get pre-approved by your bank before shopping
» How much of a home do you want to afford? The answer is not necessarily to purchase the maximum home you qualify to buy, but what you want to afford
» What will your payments be, if interest rates rise (and they definitely will) one, two or three per cent? Ensure you can easily afford the increase
» First-time buyers of new homes priced at less than $400,000 will be minimally affected by the HST. Generally, there are no real estate commissions for the purchaser of a home. Legal fees are not usually high for a purchase and are minute in the grand scheme of purchasing a home
At the end of the day, a home is a long-term investment, so look beyond the next year or two.
Henry Choo Chong, CGA, sits on many committees and provides accounting and tax services to individuals and businesses in the GTA. He can be reached at 416.485.5225. Questions to Taxing Issues can be emailed to firstname.lastname@example.org