It’s important information for brokers, but also their clients buying new builds in the GTA and facing an unprecedented spike in fees that won’t be covered by the mortgage.
The bearer of that bad news
is a new report from the region’s building association suggesting those buyers now face a long list of governmental fees that can average 23 per cent of the total price.
That is just one more straw for the camel’s back, says Rajan Kaushal, president of Tribecca Finance, who has seen fees go up and up and up over the past few years.
“Construction prices alone have gone up considerably just in Toronto,” says Kaushal, “and by the time you add them all together with the fees and taxes like the HST – it really puts a damper on the housing market.”
The average cost of fees on a single-detached home in the GTA is $118,400, according to a recent report from the Building Industry and Land Development Association. For a high-rise condo, the fees average more than $64,000 – or 20 per cent.
"Right now, municipalities across the GTA are looking at how they are going to pay for critical infrastructure that will be used by not only new residents, but existing ones as well," said Bryan Tuckey, BILD president and CEO.
"Increasing development charges and other government fees is not the answer. New homebuyers across the GTA are already doing their fair share to support the development of essential public infrastructure."
The charges include everything from HST and transit levies to municipal development charges, pushing the price of a detached home to $640,000.
Tuckey estimates these fees can amount to more than $60,000 in carrying costs alone over the life of a mortgage.
And the HST is where the trouble started, says Kaushal.
“That was the beginning of when we started to see a real impact on new housing development,” he told MortgageBrokerNews.ca. “The HST placed an additional 8 per cent on construction, in addition to the original 5 per cent GST. After that, the development fees and Toronto land transfer tax just kept pushing prices up and up.”
Since 2004, Tuckey points out in the report, municipal development charges have increased anywhere from 143 per cent to 357 per cent in the six GTA municipalities that were included in the study.
Drew Donaldson, executive vice president of Safebridge Financial Group in Toronto, says that clients can find themselves at the mercy of the builder if they don’t go over the costs with a lawyer.
“I always warn my clients about the potential high closing costs on any new construction homes or condo,” says Donaldson. “They really are at the mercy of the builder and I recommend they sit down and review in detail what those costs will be with their lawyer.”
For some clients hoping to “get a deal,” there can be sticker shock upon signing when they realize the builder fee cannot be rolled into the mortgage.
“Many people don’t know this and think they can buy a unit directly from the builder the same as resale; and then closing day comes and they have to come up with an unexpected $5,000-$10,000 that can’t be rolled into their mortgage,” says Donaldson. “I am not blaming this all on the builder, as some of it is government levy and just the cost of doing business.”
Kaushal sees the effect of high taxes and fees in the growing number of new construction homes sitting vacant, waiting for a buyer.
“We are starting to see those new homes sitting on the market for longer periods of time,” he says. “It is definitely having an impact.”
But Kaushal doesn’t see a bubble bursting or a hard landing for the GTA.
“Personally, I think we are in a healthy market right now,” he cautions. “The new (mortgage) rules have played a part in slowing demand; and if we continue like the way we are now, there will be a nice, level even keel to the market in the coming year.”