The market bump generated by the federal government’s HST rebate announcement earlier this spring continued with May new-home sales.
The monthly Greater Ottawa New Home Market Report noted a whopping 621 sales in May, almost double what they were the year before (315), and down only slightly from April’s record high 744 sales. The active spring market has resulted in a 53 per cent increase in sales for the year to date: 2,179 versus 1,418 last year.
“While the enhanced rebate has triggered a recent spike in new-home sales, this isn’t natural market growth,” says Cheryl Rice, president of PMA Brethour Realty Group’s Ottawa branch. PMA prepares the market report in partnership with the Greater Ottawa Home Builders’ Association.
“Instead, it’s a wave of artificial demand driven by buyers who have been sitting on the sidelines, many of them for years. Combined with a new generation of buyers just now entering the market and who are realizing the extended rebate finally puts homeownership within reach, the announcement hasn’t just stimulated the market, it has essentially opened the floodgates.”
Rice cites the example of Magnolia, a new development in Stittsville by Caivan, which launched May 9. It saw buyers lining up overnight and a sellout of the initial lots released on opening day, prompting a second release the following day.
“With 52 townhomes and 54 single-detached homes sold, it was an exceptional launch by any measure,” Rice says. “A major factor behind the strong sales performance was the aggressive incentive package,” which included price discounts and waiving the premium on lots with walkout basements.
Combined with the tax rebate, “this lucrative offering generated significant buyer interest and encouraged many prospective purchasers to act quickly. Caivan’s successful launch is also a reflection of the pent-up demand that has accelerated Ottawa new-home sales in past months.”
But not all is rosy, Rice notes.
The rebate announcement “made for a great headline, but the actual rollout has been a bureaucratic mess for builders and buyers alike. Although the eligibility window has technically been open for months, federal legislation has yet to fully clear and the necessary CRA (Canada Revenue Agency) forms don’t even exist yet.”
Despite the confusion, she adds that the program “remains very much in play, with pent-up demand driving the recent sudden surge in new-home sales.”
To manage the uncertainty, “many developers are using builder ‘escape clauses,’ a smart business practice that shifts the tax risk from the builder to the buyer. However, while some buyers are willing to risk scraping together tens of thousands of extra dollars on closing day, others simply cannot. These buyers need the rebate reflected directly in the Agreement of Purchase and Sale to secure bank financing, which is why tensions are running so high.”
MORE: Understanding the HST rebate
Interestingly, the resale market — which does not benefit from the rebate — remained sluggish in May. Sales were up from April but were down more than 10 per cent from the year before.
