In the past few days we’ve heard about changes at both the federal and provincial levels that will affect home buyers here in the Greater Vancouver area, some more than others. First was the changes to down payment amounts for home purchases over $500,000.00 requiring mortgage insurance from the Canadian Mortgage and Housing Corporation (CMHC) by the federal government. Federal Finance Minister Bill Morneau announced back in December that CMHC-insured mortgages for homes over $500,000.00 will require buyers to pay 10% on their down payment for the amount over $500,000.00; homes $500,000.00 or less will remain unchanged at 5% down payment1. Morneau stated this is to help reduce the risks home buyers may be facing if and when the interest rates change in this current heated real estate market, particularly the markets in Vancouver and Toronto.
While not specifically targeted by Ottawa, these changes will affect many home buyers in the Surrey-Fraser Valley areas as well. We have seen a great upswing in sales in the Valley, particularly in Surrey and parts of Langley. The mean average price for single-family detached homes in the Fraser Valley for January 2016 was $850,8002, with the median price of $748,559 (the mid-point in the sales price range at which 50% of total homes sold for). There are still detached homes available for under $500,000 in the Fraser Valley, but the market simply reflects that there is more demand for these homes in desirable neighbourhoods. Even with the CMHC changes, buyers will still find more home for their dollar in the Valley compared to the Vancouver area.
Buyers who are looking in the townhouse or condo markets likely will not be affected by these changes because those average and median prices are still far below the $500,000 mark; townhouses at a mean average of $384,224 and condos at $239,217.
The second set of changes were announced in the BC Provincial Budget yesterday regarding Property Transfer Tax (PTT) in our province. Exemptions for first-time buyers3 remain the same as follows:
- buyer must be a Canadian citizen or permanent resident
- have lived in BC for 12 consecutive months immediately before the date you register the property or filed at least 2 income tax returns as a BC resident in the last 6 years
- have never owned an interest in a principal residence anywhere in the world at any time
- have never received a first time home buyers’ exemption or refund
and the property must:
- be located in BC
- only be used as your principal residence
- have a fair market value of $475,000 or less (partial exemption is available for homes priced $475,000-$500,000)
- be 0.5 hectares (1.24 acres) or smaller
The real changes are for purchasers of new construction homes as well as homes priced at $2,000,000.00 and higher. As of February 16, 2016, all buyers (whether first time or not) are no longer required to pay the PTT on purchases of new construction homes up to $750,000.00. To qualify, buyers must be:
- a Canadian citizen or permanent resident
- purchasing a property in BC as a principal residence up to $750,000.00 and under 0.5 hectares
There is a partial exemption for new construction homes priced between $750,000.00 and $800,000.004 and/or over 0.05 hectares.
For homes over $2,000,000.00 the PTT structure has changed. Buyers will be charged 1% on the purchase price up to $200,000.00, 2% will be charged on the amount over $200,000.00, and 3% will be charged on any remaining amount over $2,000,000.00. There is a calculator form available on the Provincial Government website at
So what does it all mean for you if you’re considering purchasing a new home in the current market? If we take the benchmark5 price of detached homes for the Fraser Valley of $691,100.00, the PTT breakdown will look as follows:
Figure: PTT on $691,100
|1% on $200,000 or less:||$2,000.00|
|2% of remaining portion:||$9,822.00|
|Total Tax Payable||$11,822.00|
Along with the new down payment rules, since this is higher than the $500,000.00 cap for CMHC insurance, the required down payment would be $69,110.00 instead of $34,555.00. As a home buyer in the Fraser Valley, you would be looking at $80,932.00 just in the down payment and property transfer taxes alone. Other costs associated with purchasing a new home include a home inspection, the application fee for CMHC insurance (when down payment is less than 20%), deposit on the purchase price (typically 5-10% of the purchase price, but is negotiable), appraisal (usually when the buyer has a down payment over 20%), survey certificate or title insurance, legal fees (for conveying title and registration of the mortgage), proof of home insurance–in addition to the purchase of home and fire insurance itself, interest adjustment, and any property taxes credited back to the seller if the home is purchased after the tax due date.
If your home is part of a strata complex, there are costs associated with the required forms necessary for purchase of a strata property including the Information Certificate (Form ‘B’), the Certificate of the Strata Corporation (Form ‘E’), and–if available–the Notice of Tenant’s Responsibilities (Form ‘K’). Most property management companies also charge for copies of the bylaws and rules, financial statements and budget, strata plan, minutes of any and all meetings of the strata council, adjustments for strata fees, and–if available–copies of a depreciation report, a building envelope report, engineering report, or any other reports or documentation needed for the purchase of a strata property.
Even though news reports highlight the current low interest rates available for mortgages and the record high sale prices of homes in our area, the changes to taxes and required down payments will mean that buyers of single-family detached homes will be expected to come up with more money up front in the purchase of their new home.
Want to know what your home is worth in the current market? Curious what is happening in your neighbourhood? Or what your dream home would cost today? Give me a call for a current market evaluation; it’s a good idea to keep an eye on what you’re home’s value is as the market changes. Interest rates do not appear to be going up by any significant amount soon, and the demand for detached homes in the Fraser Valley has not slowed down. With the market being difficult to predict, if you are seriously considering purchasing a new home, this may be your best time to do so before any other increases happen.
1. Government of Canada, December 11, 2015. http://www.fin.gc.ca/n15/15-088-eng.asp
2. Fraser Valley Real Estate Board, Monthly Statistics Package January 2016.
3. Provincial Government of British Columbia, February 16, 2016. First Time Home Buyers’ Program.
4. Ibid. Newly Built Home Exemption. http://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/exemptions/newly-built-home-exemption
5. Benchmark price refers to the pricing of a “typical” home in a given neighbourhood or area, and “typical” is determined by the attributes of a home valued by buyers such as the number of bedrooms, property size, age, garage size, location to schools, etc., with the price calculated according to the dollar values assigned for each attribute.