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Remember Y2K? The unfounded fear lives on with HST Add to ...

If you want to compare the impact that the harmonized sales tax (HST) is having on today's housing market, think back to Y2K. In the 18 months leading up to 2000 there were horror stories galore about the potential impact. Planes would fall from the sky as their onboard computers stopped working on the stroke of midnight. Anything with a computer chip would shut down unless remedied in advance.

In truth the impact was wildly overstated; everyone adjusted and Y2K turned out to be a tremendous yawn. Its major impact was not the reality but the effect misinformation had on consumer confidence.

People just did not understand the situation.

There is indeed a close parallel with the HST, say men like Phil Soper, president of Royal LePage Real Estate Services, Canada's largest residential brokerage, and Jim Ritchie, senior vice-president sales and marketing at the Tridel Group, developer of thousands of high-rise condo suites.

"There is a ton of misinformation out there," says Mr. Ritchie. "The result is that people are hanging back from making buy decisions."

To cut to the chase, with resale homes the only place HST applies is to closing costs. There is no HST on resale homes. Yes, you will pay significantly more on things like real estate agent's commissions, legal fees, home inspections and such but not on the price of the home itself.

With new homes, while HST applies on anything costing more than $400,000, almost all the builders in the GTA started including the new HST into their price structures a year ago. Again the only sticker shock will come when buyers sit down and face increased closing costs.

"One of the things people don't understand is that as soon as we got the details of the HST we

adjusted prices on anything that would close after July 1 of this year," says Mr Ritchie. "The impact had already been taken care of."

And yet this spring and summer fears about HST continued to plague both new and resale home

sales, the pair say. In an effort to shed some light on the situation Royal LePage commissioned a

survey of 735 of its agents and brokers in British Columbia and Ontario, the two provinces where HST would likely have the most effect on housing.

The result supported what the industry felt was happening. About 86 per cent of those agents and brokers said HST was affecting their sales somewhat and 46.7 per cent said that confusion over the HST is still ongoing.

By comparison only 28.4 per cent said rising interest rates were affecting business.

"We have had three significant things affecting the resale market so far this year," says Mr. Soper. "In winter and early spring it was the boom in resales. That produced much discussion about a housing bubble that would collapse and along with it prices.

"At the time we tried to explain the boom was simply the result of 18 months of pent-up demand and that it would slow as the year went along, which it has."

The second thing the industry had to deal with was changes to CMHC rules raising income

requirements for those hoping to qualify for a CMHC-insured mortgage. In essence that affected

anyone buying a home with less than a 20-per-cent down payment.

The third factor was continuing confusion over the impact of the HST.

Taken together they have created enough confusion and uncertainty to shake consumer confidence and lack of confidence quickly translates into a reluctance to buy a home, the pair say.

"Buying a house means you are committing you and your family to the biggest investment you will ever make and committing them for a very long period," says Mr. Soper. "You are unlikely to do that unless you are certain of what you are getting into and certain you can keep that commitment."

What can be done to clear the confusion? Mr. Ritchie says time will probably take care of that.

"It is just going to take a bit longer than we hoped for people to get it right in their minds."

Royal LePage is taking a more proactive role. Mr. Soper says the company has prepared HST

information kits for its agents to give to prospective buyers band has urged both provincial and

national real estate associations to help through their own public information campaigns.

Interestingly neither man is willing to discuss the provincial government's responsibility to prevent confusion in the first place or to step in and rectify the situation once the impact of that confusion is evident.

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