Verifying what home builders have been saying for years, a new report from Canada Mortgage and Housing Corp. (CMHC) confirms that government costs and fees add tens of thousands of dollars to the price of a new home.
In Vancouver, fees and charges accounts for 20 per cent of the price of a new condo apartment, a new federal study says
Photo credit: canva.comExpand
The study examined the number and cost of government fees on six different new home development scenarios, from a single-detached house to low- and-high-rise multi-family buildings, in select municipalities in Canada’s three largest metropolitan areas: Metro Vancouver, Greater Toronto Area (GTA), and Montreal.
“The single-detached house tends to be the housing type subject to the lowest government fees . This seems to run contrary to densification efforts being pursued by municipalities, which are necessary to increase housing supply within existing urban areas,” CMHC noted.
According to the report, the average government charge per square foot for municipalities in the GTA is $86; in Metro Vancouver, $70; and, in Montreal, $24.
The City of Vancouver had the highest cost per square foot on low-rise and high-rise strata condo buildings of all cities studied, at $143 per square foot, owing entirely to density payments.
Density payments relate to the amount of density permitted on a site and are designed to raise revenue for community amenities (such as swimming pools, parks, etc.).
“The size of contribution payments can be subject to negotiation, introducing an additional layer of complexity and uncertainty. The amount levied is related to the incremental value of the site pending rezoning (“land lift”) or additional density being permitted on a site,” CMHC noted.
Government charges for low-rise rental buildings in Vancouver were the second highest in Canada, at $45 per square foot.
In Vancouver, the average of 9.3 charges per new multi-family development account for 7 per cent to 20 per cent of construction costs, with new condominiums bearing the higher percentage.
In comparison, a typical developer’s profit on a new condo project is estimated at between 10 per cent to 15 per cent on a development pro-forma statement, according to CMHC.
Previous private-sector studies done by the Greater Vancouver Board of Trade and Toronto’s Building Industry and Land Development Association estimated that government costs accounted, on average, for 21 per cent of the price of a new detached house and 26 per cent of the price of a new condominium.
Based on average current new home prices and CMHC’s estimates, government costs would add approximately $180,000 to a price of a typical new condo in Vancouver.
The CMHC study also included North Vancouver, Langley and Burnaby within Metro Vancouver. Langley has the lowest government fees per square foot (between $12 and $33). Fees per square foot in North Vancouver and Burnaby are similar to Vancouver, hovering between $9 and about $40 per each square foot of new construction, the study stated.
Sources: Frank O’Brien, Western Investor, biv.com
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Homebuyer Protection Period (HPP)
Sources: https://news.gov.bc.ca/, https://www.bcrea.bc.ca/
A new homebuyer protection period will protect people in B.C. looking to buy a home from being pressured into high-risk sales.
The period is the first of its kind in Canada and marks the first key action the Province is taking based on the B.C. Financial Services Authority’s (BCFSA) report on ways to offer homebuyers better consumer protection in the real estate market. The mandatory three-day period will give homebuyers an opportunity to take important steps, such as securing financing or arranging home inspections, as they prepare to make one of their biggest financial decisions.
“Too many people have been faced with giving up an inspection in order to buy a home,” said Selina Robinson, Minister of Finance. “This is a major step toward providing homebuyers with the peace of mind they deserve while protecting the interests of people selling their homes – for today’s market and in the future.”
The homebuyer protection period will come into effect on Jan. 1, 2023. It includes a recission (cancellation) fee of 0.25% of the purchase price, or $250 for every $100,000, for those who choose to back out of a deal. For example, if the purchaser exercises the right of rescission on a $1-million home, they would be required to pay $2,500 to the seller.
Buyers still may make offers conditional on home inspections or financing at any time. The protection period will offer homebuyers the opportunity for due diligence at times when conditions are not in place.
The homebuyer protection period is informed by the results of consultations that the BCFSA completed this year with a wide range of real estate industry stakeholders, including home inspectors, appraisers, realtors and academics, as well as representatives from the legal and financial services sectors.
The Province will continue studying the BCFSA’s advice and its potential effects to further strengthen public confidence in the real estate market.
Quotes:
Blair Morrison, CEO, B.C. Financial Services Authority –
“Buying and selling a home are the most significant financial transactions in most people’s lives. The parameters to implement a homebuyer protection period, as well as other potential consumer protection enhancements, set forth in BCFSA’s advice to the government, are designed to give British Columbians appropriate time to exercise due diligence. Our advice is based on consultations with over 140 stakeholders, including industry experts and public-interest organizations. We want to promote confidence in real estate transactions and our advice is aligned with that outcome.”
Jonathan Sheppard, president, Home Inspectors Association BC –
“Home inspections help to eliminate some of the potential costly risks involved in purchasing while helping to make an informed decision. Home Inspectors Association BC members are proud that the B.C. government has recognized these risks and again leads the country in consumer protection.”
Andy Yan, urban planner and director of the city program, Simon Fraser University –
“The homebuyer protection period is something that is long coming and much needed as a modernization package for how homes are purchased in British Columbia and for the stability, accountability and transparency of the entire market.”
Tsur Somerville, senior fellow, UBC centre for urban economics and real estate –
“It is important to balance the interests of buyers and sellers. A key objective is to level the playing field and allow buyers to avoid having to make decisions under unreasonable time pressure. It addresses the very important goal that buyers feel trapped into buying a property without an inspection.”
Elaine Spilos, B.C. homebuyer –
“The homebuyer protection period guarantees time for the homebuyer to get the necessary information to make a wise decision.”
Quick Facts:
- BCFSA is responsible for the supervision and regulation of the financial service sector, including real estate professionals, mortgage brokers, insurance, pensions, trusts, credit unions and the Credit Union Deposit Insurance Corporation.
- B.C. will be the first province to implement a homebuyer protection period for resale property and newly constructed homes.
- Cooling-off periods for pre-construction sales of multi-unit development properties, like condominiums, are in place under the Real Estate Development and Marketing Act.
While there remain many unanswered questions, here are the details of the HPP upon the announcement:
Deposit
- if a deposit is held in trust, brokerages may release it upon rescission
- rescission fee amount is provided to the seller
- the balance (if any) is returned to the buyer, despite what may be provided in the contract.
Exemptions and waivers
The HPP cannot be waived. Narrow exemptions include:
- sales subject to a 21 of the Real Estate Development Marketing Act
- sales of residential real property located on leased land
- sales of leasehold interest in residential real estate
- sales at auction
- sales under a court order or supervision of a court
Defining residential real estate
The policy will apply to the following types of structures:
- detached homes,
- semi-detached homes,
- townhouses,
- apartments in a duplex or other multi-unit dwelling,
- residential strata lots,
- manufactured homes that are affixed to land, and
- cooperative interests that include a right of use or occupation of a dwelling.
The HPP does not apply to presale properties already subject to a rescission period under the Real Estate Development Marketing Act.
To read the report to the province, called Enhancing Consumer Protection in B.C.’s Real Estate Market, go to: bcfsa.ca/media/2861/download.
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