***
After a burst of outrage when it was first announced, home builders and high-rise developers across the province have reluctantly accepted that the new harmonized sales tax is here to stay come July 1.
Most affected are those operating within the GTA. With a $400,000 starting point for application of the HST, new homes in smaller centres will - in the main - be exempt.
"I think maybe just 5 per cent of our homes are affected," says Sid Kerrigan, president of Brookfield Homes (Ontario) Ltd. "We have projects in Oshawa, Bradford, Brantford and Niagara-on-the-Lake. In all of them almost everything comes in well below $400,000."
The GTA, however, has been hard hit. With the average price of a new low-rise home standing at almost $460,000 and the average new condo price weighing in at $398,000, builders have had to scramble to decide what to do about pricing.
The choice was relatively easy for projects well under way. The province has said that anything on which a contract was signed before June 18 would be grandfathered in the new legislation; there would be no HST on these units.
For projects with unsold inventory and those launched after June 18, however, builders faced a number of choices: They could eat the HST and not raise prices for projects already launched; raise prices on suites; factor the HST into the selling price of projects yet to be launched, or redesign suites to make them small enough that their prices would slip below the magic $400,000 mark.
"I think you will see redesign of suites going on in new projects," says Hunter Milbourne, president of Hunter Milbourne Real Estate Inc., a condo brokerage and marketing firm that has about 20 projects on the go in the GTA.
"Builders will look at their pro formas, and if it costs $600 a foot to build and the price based on size is just over $400,000, then they will redesign to bring it in under that $400,000 mark," he says. "If, however, the price comes in at maybe $450,000, then they will likely adjust the size of the suite upwards and charge maybe $500,000 or $600,000."
The idea is that people willing to fork out that much for a new condo are probably willing to pay HST for the larger floor space. At the same time, however, it also suggests that Toronto's already small condos may be getting smaller.
Larry Blankenstein, president of Lash Development Corp. says he and his partner The Goldman Group simply ate the HST on 530 St. Clair West, which was not launched until October.
"There was so much confusion about what was going to happen with the HST, we did not know what the impact would be on sales," he says. "So we decided at that time to just eat the tax on any of the suites which would be affected."
Chuck Mady of Mady Development Corp. says his company swallowed the HST on the two projects it had already launched but factored it into the proposed selling price for suites at two yet-to-be-launched projects.
"For the ones we had already launched, we just didn't think they would sell if we tacked the HST on top of the selling price, so we absorbed it," he says. "And with the new ones, we factored it into the selling price because I think if people had to pay it on top then that would have been a major deterrent."
But whether the HST is absorbed in selling prices or grandfathered, buyers will face a couple more unpleasant surprises come closing.
Mr. Milbourne says HST will raise closing costs because certain services that have been exempt will be subject to the HST. Monthly maintenance fees will also be hit.
"There is not really much a developer can do about that," he says. "The two biggest costs for maintenance are utilities, which are about 30 to 35 per cent, and staff like concierges and resident superintendents, which is about 25 per cent. Cutting back on the rest of the items that make up maintenance won't make much of a difference."
