A reader of this blog (not my client) recently emailed me asking for my advice/help after they got the shock of a lifetime when seeing their statement of adjustments on their new condo that they were about to close on. The person in question bought a large unit at Festival Tower a couple years ago when they were offering their 5% deposit program. The price of the unit including some minor upgrades was ~$840K. Imagine how you would feel if your lawyer told you you had to come up with $74K for closing costs (not a cent of which would go towards equity in the unit). The costs that the buyer had to pay on closing included:

• HST of $39K
• Land Transfer taxes of $19K (after the first time buyer rebates were applied)
• Tarion enrollment fee $1250+HST
• Legal fees – for interim closing and for final closing $1300+HST
• Property taxes pre-paid by developer $750
• Development Charges $2900+HST
• Occupancy fee not already paid for $2500
• 3 months common element fees for reserve fund $1800
• Water and gas hook up fees $1000
• Nickel and dime admin fees $550
• Nickel and dime disbursement fees, mortgage registration etc. $1200

Now obviously the BIG expense here is the HST. He purchased the unit shortly after the HST came into effect but shortly before developers universally started to include the HST in the cost of the unit. (If you bought a new condo post June 2009, you better check and see in your contract if HST was included.) Development fees, Tarion enrollment fees, and water/gas hook up fees are all examples of costs that buyers incur when buying pre-construction instead of going resale. This buyer was NOT an investor so this is HST money that he will never get back (see my previous post on the HST debate/question).

The buyer told me he was not expecting these closing costs and had to scramble to get the $74K in funds together just to close on this property and not be in default of his contract. Ouch. How can this happen?

This story once again illustrates what I have been preaching for nearly 4 years on this blog:

1. Never buy a pre-construction condo without using a Realtor who is experienced and competent in handling pre-construction sales and working with developers. Ask them what they can do to minimize or eliminate hidden closing costs.
2. ALWAYS get your contract reviewed by a lawyer who is experienced in dealing with pre-construction condos and dealing with developers. Ask them what closing costs you will incur (according to what the contract says) on closing day. Go into your purchase with your eyes wide open.

Questions or comments? Do you have a story of how you were surprised when you saw your statement of adjustments? I’d love to hear about it. Contact me here.

This has many people inside and outside the Real Estate industry very concerned. The cost of a new condo or home in the GTA could jump overnight by tens of thousands if this new tax was implemented with no concessions. (Resale properties are not subject to the GST or PST).

The province just announced some new proposed changes to be made to how the HST is implemented as it pertains to new housing. Continue reading for the full press release from TREB.

June 19, 2009 — The provincial government has announced some proposed changes to the way it would apply the proposed Harmonized Sales Tax (HST) to the purchase price of newly constructed housing. The provincial government has also announced proposed transitional details for newly constructed properties.

Background
The provincial government has announced that it intends to combine the eight percent Provincial Sales Tax with the five percent federal Goods and Services Tax, creating a 13 percent Harmonized Sales Tax (HST).
• The HST is NOT YET IN EFFECT. The provincial government has indicated that it intends to bring the HST into effect beginning on July 1, 2010.
• HST will not apply on the purchase price of re-sale homes.
• HST would apply to services such as moving cost, legal fees, home inspection fees, and REALTOR® commissions.

Proposed Changes for New Housing Rebate
HST will apply to the purchase price of newly constructed homes. Originally, the provincial government indicated that it would provide a rebate to ensure that, on average, new homes under $400,000 would not be subject to an additional tax burden. Homes priced between $400,000 and $500,000 would be eligible for a portion of the rebate, and homes priced above $500,000 would be subject to the full HST. However, the provincial government is proposing some significant enhancements to these rebates, as follows:
• Enhanced new housing rebate – The province is proposing to enhance the new housing rebate so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system.
• New rental housing rebate – Similar to the enhanced new housing rebate, the province is proposing a rebate for new residential rental properties. This proposed rebate would support affordable rental housing across Ontario.

Proposed Transitional Rules for New Housing
The province is also proposing transitional rules for new housing. Generally, as part of the transitional rules, sales of new homes under written agreements of purchase and sale entered into on or before June 18, 2009 would not be subject to the provincial portion of the single sales tax, even if both ownership and possession are transferred on or after July 1, 2010. The tax would also not apply to sales of new homes under written agreements of purchase and sale entered into after June 18, 2009 where ownership or possession is transferred before July 1, 2010.

More Detail
Additional detail on the proposed enhancements to the new housing rebate, rental housing rebate, and new housing transition rules is available from the Provincial Government here.