After years of requests from real estate developers, the federal government announced on September 14th that it will exempt new rental apartment buildings from paying 5% GST on construction costs. The intention is to incentivize developers to proceed with constructing rental apartments, which should increase the availability of rental units and ideally bring down rent prices.
Real estate developers have argued that rising costs make it financially impossible to build rental apartments, which limits supply and drives up rents. One of the reasons being that rental buildings require the developer to pay 5% GST on its construction costs, since there is no ultimate buyer of the unit. For condo and townhome sales, the ultimate buyer pays the 5% GST instead of the developer. For many developers, the GST on rental projects alone could be millions or tens of millions dollars, which is often the difference between whether a developer decides to build or not.
The impact of this policy will remain to be seen, but giving developers a break on GST should see more rental units constructed, ultimately benefiting supply.
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