Ontario's expanded HST rebate could save eligible buyers up to $130,000, yet closing day still poses real financial risks
Ontario's expanded harmonized sales tax (HST) rebate has renewed interest in pre-construction homes, offering eligible buyers a significant incentive to enter the new-build market.
However, the savings on offer do not insulate buyers from one of the most stubborn risks in today's housing market: the appraisal gap at closing.
Leah Zlatkin, licensed mortgage broker and LowestRates.ca expert, says the rebate has drawn fresh attention to pre-construction properties, including condominiums, semis, and townhouses.
Yet she cautions that buyers focused on the savings headline may be overlooking a more pressing set of financial considerations before they reach the closing table.
According to Ontario's rebate framework introduced earlier this year, buyers of new homes valued up to $1 million will receive a maximum rebate of $130,000, covering both the provincial and federal portions of HST.
That full $130,000 will maintain up to $1.5 million, then phase down to $24,000 for homes priced at $1.85 million and above. The program is slated to run from April 1, 2026 to March 31, 2027, with construction timelines extending to as late as 2031 in some cases.
That figure has attracted attention. But Zlatkin says the excitement over upfront savings should be tempered by a clear-eyed look at what can happen between now and closing day.
"Appraisal challenges are showing across condos, semis and townhouses, especially in communities outside major urban centres where values have shifted since the market peak," Zlatkin said.
"For anyone looking at pre-construction today, those closing challenges are an important reminder that the HST rebate doesn't change how a lender assesses the mortgage. If market conditions continue to shift before closing, the lender's valuation can affect how much a buyer needs to close on the property."
Read more: Ontario HST rebate: Will it jolt a stalled housing market?
The rebate does not change how lenders value a property
The distinction Zlatkin draws is an important one. A rebate reduces what a buyer pays in tax on a new home — it does not affect the lender's independent assessment of what that home is actually worth.
If the appraised value at closing falls below the original purchase price, the buyer must cover the shortfall in cash, regardless of any tax savings already received.
This dynamic is not theoretical. Toronto's pre-construction condo market has seen buyers abandon units as appraisals come in significantly below original contract prices, with some buyers facing shortfalls of hundreds of thousands of dollars as buildings near completion.
Toronto-based broker Shabnam Gill of Dove Mortgages previously told Canadian Mortgage Professional that "anything after 2019 really is not currently appraising," and that appraisal challenges are a major issue for pre-construction buyers currently reaching their closing dates.
The problem is not limited to Toronto. Broker Anthony Zhang of DLC Clear Trust Mortgages told CMP that the pre-sale segment in Vancouver is likely to see further distress as appraisals drop, with some lenders slashing loan-to-values to as low as 55% per condo unit.
Canada's banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), has also warned major lenders that a common method of valuing pre-construction condos using blanket appraisals tied to the original purchase-agreement value could breach federal mortgage rules when property values have fallen.
The regulator noted that blanket appraisals obtained during pre-construction may predate mortgage origination by a significant amount of time, and that a significant time lapse between the valuation date and the mortgage origination — which is more likely to occur with new-build condo purchases — can result in outdated contract values or appraisals.
What buyers should prepare for before closing
Zlatkin outlines several steps buyers can take to reduce the risk of being caught off guard at closing.
Early engagement with a mortgage broker is her first recommendation. Buyers who assume their financing is on track can be caught off guard when the appraisal does not support the purchase price.
Reviewing the purchase agreement and keeping financial documents current gives buyers a clearer picture of their obligations ahead of closing.
Zlatkin also stresses the importance of maintaining a financial cushion. Buyers should avoid taking on new debt before closing, and should budget not only for closing costs but also for any potential appraisal gap.
A pre-construction buyer who qualifies for the HST rebate is not exempt from needing additional cash reserves if the lender's valuation comes in lower than expected.
Read more: How are precon buyers coping with lower appraisals at closing?
For buyers who are concerned about their ability to close, Zlatkin points to one additional option: assignment. If a purchase agreement permits the buyer to transfer the contract to another party before taking possession, this may provide an exit.
However, she notes that assignment rules vary by builder and contract, and buyers should consult a real estate lawyer before assuming the option is available.
"Closing becomes more stressful when the appraisal comes in low and the buyer doesn't have enough cash to cover the gap," Zlatkin said.
"At that point, they need to understand their financing options, how much additional money is required and what their obligations are under the purchase agreement. The sooner buyers review those numbers, the more time they have to deal with a shortfall before closing."
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