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Wednesday, August 27, 2014

The Landlord or BC Property Owner’s Perspective on BC HST

Posted by admin on September 11, 2011

THE LANDLORD OR BC PROPERTY OWNERS’ PERSPECTIVE on the indirect implication of the BC HST on rent and BC HST impact on rental housing rates

One thing to remember is that even though there is no direct HST tax on rents in British Columbia, landlords and property owners will be taxed the 12% HST on other goods and services that are required to run a rental home, condo or townhome. Remember that the landlord only sees the bottom line or the monthly cashflow (either negative or positive) that he or she gets from a BC rental property. With the implementation of the BC Harmonized Sales Tax in July 1st, 2010, the BC and federal government will apply the 12% HST tax to all goods and services associated with operations, maintenance and renovations to any property, including new rental housing. These increased costs and expenses to the property owner or landlord will result in a tigher cashflow and bottom line. And you know what that means. With less income coming in, guess who will end up paying for the increase in expenses to a BC rental home? Yes, you guessed it …. Most likely, the landlord or BC property owner will add any extra expense to the rental rate. This is why we call it an indirect implication of the BC HST on rents. The BC HST impact on rental housing will be profound. Just think about this: if all the goods and professional services cost 12% more than they do currently, BC landlords and property owners will probably increase the rental rates on rental homes, condos and townhomes by the same 12% (twelve per cent). What this means is that $1,000/month may be jacked up by 12%, taking it to $1,120/month rounded up to $1,150/month for the exact same rental housing unit in BC. Here are 3 main reasons why the indirect effect of the BC HST on rents will likely increase Vancouver rental rates and decrease affordability for renters.

Reasons #1 – 12% HST Tax Burden on New Homes

The most obvious reason why Vancouver rents will increase due to the new B.C. HST is because the 12% tax will be applied to any new homes purchased, including rental condos, single family homes and rental townhomes. Although this is an upfront cost to landlords and property owners/investors looking to rent their suites and units, when it comes to a Vancouver real estate investment, the investor only looks at the cashflow or bottom line. If the numbers do not make sense, the investor does not purchase the property. If the numbers do make sense and the property investor can get positive monthly cashflow from the rental unit, then they make the numbers work as best as they can. However, the BC HST on rents is indirectly affected by the original purchase price of the rental housing unit. The increased original purchased cost through the BC HST tax burden will ultimately be serviced by an increase in Vancouver rents and rental rates.

Reason #2 – Cost of Operating a BC or Vancouver Rental Suite Goes Up

Essentially, through the adoptation of the 12% BC HST, landlords and real estate investors who rent out their homes, condos and townhouses will see an increase in costs for operating their BC rental housing. If the rental Vancouver home belongs to a strata or community, like most rental condos, townhouses and even some single family homes in master planned communities throughout British Columbia, chances are, the landlord or property owner is paying strata fees or homeowner association fees. With the implementation of the British Columbia Harmonized Sales Tax, there will be BC HST on strata fees and B.C. HST on homeowner association fees as well, increasing the ongoing monthly costs by 12%. In addition, any Vancouver rental operating costs associated with accounting or legal fees will also be taxable under the new tax rules. What this means is that there is BC HST on accounting and HST on legal fees and notary republic costs. This ultimately has a direct impact on the BC HST on rents and Vancouver rental rates, pushing up landlord and property ownership costs that will be passed onto the renter. For BC landlords that pay for utilities, your costs have gone up again.

Reason #3 – Cost of Maintenance and Renovations Will Skyrocket

Not only will BC rental housing operations cost more, but the cost of maintenance and renovations for landlords in the province will also skyrocket. All trades services and products will be subject to the new Harmonized Sales Tax. What this means is that there is BC HST on renovations, including green initiatives, energy efficient products/appliances, rebuilding roofs, foundations, decks, add-ons and other retrofit projects. Not only that, but there is also BC HST on professional services that may include renovation staff, property appraisals and property inspectors. Because of this added HST tax burden, we see many home owners and landlords staying away from renovating their rental housing in Vancouver because it simply costs too much. Therefore, not only will we see the effect of BC HST on rents go up, but the state of the Vancouver rental homes will likely go down.

Kararent Team

Vancouver Renters Can’t Escape the BC HST Tax

Posted by admin on

THE RENTERS PERSPECTIVE on the confusing implication of the BC HST on rents and Vancouver rental market
The 12% BC HST will likely and indirectly increase costs to the renter in 2 ways.
Firstly, all rental home utilities will be subject to the twelve per cent harmonized sales tax. Therefore, hydro, electricity, water, heat, gas and any other utility you currently pay will increase in cost because of the 12% HST that will be implemented on July 1st, 2010. In addition, common household necessities such as land phone lines, cell phones, high-speed internet as well as cable TV will also be subject to 12% tax. All purchases of goods and services such as appliances, utensils, furniture, bookshelves, computers and other household items will also be taxable. Therefore, the indirect impact of the BC HST on rent is that the cost of living will certainly increase a lot by this new tax.
Secondly, landlords and property owners renting out their homes to you will also feel the pinch. Not only will they have to deal with the Harmonized Sales Tax when purchasing new homes in BC and in Vancouver, but they will also experience the 12% HST tax burden on their operations costs, maintenance costs and other professional fees. Undoubtedly, this increase in expenses to the landlord will certainly increase the rents in Vancouver due to the HST tax. So is there BC HST on rent? No, BUT, the BC HST impact on rental rates and rental housing will certainly be felt for years to come as affordability for renters will go down yet again.

Vancouver Renters Can’t Escape the BC HST Tax
According to an industry leader from the B.C. Apartment Owners and Managers Association, the implications of the BC HST on rent and rental housing in British Columbia wil be devastating and may even casue a crumbling of the rental housing stocks throughout all the major centres. Because landlords and property owners already pay GST on such things as materials, renovations, maintenance and labour costs, the BC Harmonized Sales Tax will hike those fees by another 7% to 12% HST on rental housing maintenance and operations. According to the B.C. Apartment Owners and Managers Association, there is no way for them to recoup the increase in expenses to run their BC rental housing. In addition, current Vancouver bylaws have rent controls that limit increases in rent to only 3.7% for 2009, which is minimal when considering the 7% HST tax on rent. The result according to the B.C. Apartment Owners and Managers Association is that landlords and property owners will not go through with much needed maintenance and renovations on their rental properties because of the tax burden and also, they will seek maximum annual rents and also charge the maximum allowable rent increase every year just to pay for the extra 12% HST tax on rental housing operations. In addition, BC homebuilders and developers now have even less incentive to build new rental housing stock in the province and Greater Vancouver, where it is much needed to ease the tight vacancy rates as small profit margins will be shaved down even more.

Kararent Team

British Columbia HST Implications

Posted by admin on August 28, 2011

Is There BC HST on Rent? Other Indirect British Columbia Harmonized Sales Tax Implications and the BC HST Impact on Vancouver Rents

Many renters have asked us this question already: Is there BC HST on rent in Vancouver and around the province? Does BC HST impact rental housing rates and what are the implications and impact of the British Columbia Harmonized Sales Tax on rents and rental rates in major cities where vacancies are still at record lows? To answer your questions as simply as we can, there is no direct BC HST on rent in the province. Therefore, a landlord or property owner renting their home or condo to renters DO NOT charge 12% BC HST on Vancouver rents. Basically, what you see is what you get in terms of BC rental pricing.

HOWEVER, because of the implementation of the BC Harmonized Sales Tax in July 1st, 2010, there is an indirect effect of the 12% HST on rents in Vancouver and throughout British Columbia. Not only will the B.C. HST impact residential housing rents, but it will also ultimately affect commercial rents next year. Again, these is no BC HST on commercial rents directly. However, the commercial property owner will have their hands tied as the 12% new tax will be applied to all operation costs, maintenance issues, renovations and professional services. What this means is that the BC HST on commercial rents will increase indirectly due to the increase tax burden on the British Columbia commercial property owner. In this article, we will try to examine the negative impact of the BC HST on rent, even though it is indirect.

THE BC HST RENT IMPACT IS TWO-FOLD, AFFECTING BOTH RENTERS AND LANDLORDS. THE IMPLICATION OF THE BC HST ON VANCOUVER RENTS WILL CAUSE RENTAL RATES IN BRITISH COLUMBIA TO INCREASE. THIS WILL RESULT IN A DECREASE IN HOUSING AFFORDABILITY FOR RENTERS, LANDLORDS AND HOME OWNERS.

Firstly, we will try to explain what HST actually is. HST stands for Harmonized Sales Tax and BC will become the fifth province in Canada to adopt the harmonization of their provincial sales tax and the federal GST tax after Ontario, Newfoundland/Labrador, New Brunswick and Nova Scotia. By doing so, the two taxes will be combined or harmonized into a single sales tax that is equal to 12% (twelve percent). The BC government has confirmed that there is no BC HST on rent applied to rental housing in Vancouver or anywhere else in the province. What this means is that if you are renting a two bedroom condo in Vancouver costing $1,000, you are paying $1,000 and not $1,000 plus 12% HST. However, this does not mean that Vancouver rents won’t be affected by the British Columbia Harmonized Sales Tax as we will explain directly below.

Housing-start strength can’t continue

Posted by Admin on August 12, 2011

 A stronger-than-expected housing market has helped propel growth in the Canadian economy this year, but economists say recent economic and market tumult could jeopardize momentum in the sector.

The Canada Mortgage and Housing Corp. said Tuesday national housing starts rose to 205,100 units on a seasonally adjusted basis in July, 11.6 per cent higher than the 188,900 reported in the same month last year and up 4.3 per cent from the 196,600 recorded this June.

However, the pickup, driven by strong construction on condos and apartment buildings in urban centres, is likely due to builders catching up to robust demand last year, rather than expectations of coming growth.

Home building activity has been increasing through the first seven months of 2011, but starts are still down 4.6 per cent from a year ago.

The Hamilton area, including Grimsby and Burlington, was a different story.

The agency reported total housing starts declined in July — typically an active month for residential construction. The decline in total starts was driven by fewer single-detached homes being started in the City of Hamilton and Grimsby compared to 2010. Similar trends prevailed for the first half of the year, where single-detached starts matched last year’s pace in Burlington, but decreased by about one-third in the City of Hamilton and Grimsby.

Specifically, the agency reported 80 single-detached houses started in Hamilton in July, down from 116 last year. Year-to-date figures show 502 starts this year, down from 684 last year.

CMHC said total starts here have been relatively flat for the past few months, hinting some remain leery of buying a new home, preferring the resale market where listings have been at record high levels.

Nationally, during the first half of last year, the market was rebounding from recession and buyers were on a tear, prompting an influx of demand and the need to build more units.

Housing starts tend to lag activity in the resale market, and economists believe the recent strong construction activity is the result of increased demand last year.

But they doubt whether the pace can continue as the prospect of a double-dip recession in the U.S. forces them to rethink the prospects for economic growth in Canada.

“While many economic indicators have pointed to much softer growth through the summer, Canadian housing starts is not one of them, still likely responding to a firm rebound in sales activity in the second half of 2010,” said Bank of Montreal economist Robert Kavcic.

“Going forward, expect underlying household formation (about 175,000) and current economic concerns to apply some gravitational pull to starts.”

Buyer sentiment is “vulnerable to recent market turmoil,” as the large decline on stock markets has a negative effect on consumer wealth and confidence, making them less inclined to make big purchases, said CIBC economist Peter Buchanan.

“That, of course, can cut both ways. It can make investors fearful of buying real estate. On the other hand it does mean the Bank of Canada won’t be tightening quite as early,” Buchanan said.

“The other thing is that, if people are worried about putting their money into the equity market, hey real estate may not look so bad.”

But even with low rates that make the cost of carrying a mortgage cheaper, pent-up demand in the housing market could be largely exhausted.

Many buyers rushed into the market during the closing months of 2009 and early 2010, when the Bank of Canada rate was set at an emergency low of 0.25 per cent. Others decided to buy before the implementation of the new HST in Ontario and British Columbia in July 2010, or to beat two rounds of tighter lending rules.

 By: The Hamilton Spectator