PRE-CONSTRUCTION (CONDOS)

How the Deposit Works?

With resale condos in the city, you provide a deposit of at least 5% upon signing the agreement, builders on the other hand, ask for significantly higher deposits – as high as 15 to 20% max. A set amount is also required on the signing of the agreement (usually $2000-$5000), and the balance to 5% is due within 2 weeks.

Going forward, there are many ways the remainder of the deposit could be paid. For example, an additional 5% at 30 days from signing, 5% at 180 days, 5% at 365 days, or sometimes the deposit is in line with the phases of construction (5% when they break ground, 5% on occupancy, etc., but this is rare). Although you may be given time to pay the increments of 5% which could be up to a year more or less, always remember that you will need up to 15-20% for the total down payment (Deposit).

The Waiting Game

Builders will will always give an expected completion date for the pre-construction condo, but these condos are rarely completed on time. Builders are very well protected and are able to delay for many different reasons. These delays could be short, or sometimes pretty long and you can find cetain information regarding delays in the agreement of purchase and sale. Even after pre-selling all the condos, builders have a fair amount of leeway to make small or big changes to their project. They can add more floors, change the layout of certain areas, etc., Purchasers though, are protected from material changes, but this can vary. When purchasing a pre-construction condo, make sure to look at the agreement in depth and have an open mind to being flexible.

Things to Expect After Purchasing A Pre-Construction

  1. The Interim Occupancy Period – When the condo is almost fully built and ready to be moved into, this time period is where the Buyer can take possession of their unit.. During this period, the purchaser does not yet own the condo; legally there has been no transfer of land and title yet. Also no mortgage has been given either, though during the interim occupancy period, you still pay the builder an amount roughly equal to what the mortgage payment + condo fees and taxes will be. 

  2. Registration of the Pre-Construction – Once the builder and building have passed all the city and municipal inspections and are now a legal entity, the condominiums is officially registered. In the registration period, condo ownership is  now transferred to the purchasers, mortgages come into play and buyers officially become the owners of the units. This registration period usually happens 3-12 months after the interim occupancy period. To learn more about the mortgage process, simply click the Buying tab and look for the Mortgages box.

  3. Condo Fees –  In newly constructed buildings, condo fees are usually set low. That’s because they are estimated years in advance of the condo being built, and this means they don’t know the actual costs of running the building yet. But condo fees in new buildings can increase substantially during the first few years.

  4. Builder Closing Costs –  When the unit is officially registered, you’ll be responsible for certain closing costs that typically don’t apply to resale units These ‘builder adjustments’ as they call it apply to all new construction projects and include for example HST on appliances, utility connections fees, development costs, etc. These closing costs can amount to 1-3% of the original purchase price.  If you’re interested in taking over someone else’s contract via an assignment, look to see if the original purchaser capped the amount of these costs when they negotiated for the unit. You want to make sure you have about 1-2% of the purchase price for these closings costs. Also When you buy a pre-construction, you’ll need to contribute 2 months worth of condo fees to the condo’s reserve fund. This typically also happens at the time of closing.
  5. HST – Unlike resale condominiums, new condos are subject to HST. If you’re an end-user meaning that you’ll be living in the unit yourself, you’ll likely qualify for an HST rebate. If you purchased the condo as an investor, there is a similar but different rebate, and you are only eligible if you rent the condo out for at least a year. If not, you may have to pay thousands of dollars in HST upon closing. HST rules are confusing, it is best to ensure to get legal advice about whether you qualify for the HST rebate before you buy a condo.
  6. Appreciation – For pre-construction condos, the value of the condo at the time of occupancy has in most cases appreciated. This is what draws many buyers and investors towards purchasing a pre-construction. What happens is that investors pay a discounted rate to begin with, and this rate is based on current property values within the city. The sales price doesn’t change over the course of construction. By the time the building is ready for residents, everyone who bought in during pre-construction has already gained equity.  

The Realtor Choice

Before looking into the ever so hot pre-construction condominium market, it’s always good to know exactly how everything works from the initial stage of trying to get your hands on one to choosing the right pre-construction and lastly what to expect after you have purchased one. If you’re looking at purchasing a pre-construction condo in Toronto, GTA or anywhere in Ontario, the thought of whether to use a Real Estate Agent might cross your mind, and here is why you should consider speaking with one to further be informed on this matter. Also, hiring one for this process would be nothing but beneficial. 

  • Purchasing a pre-construction condo is a unique and complicated process and there are a lot of legal intricacies involved. A Realtor can take you through all of them from levies on the condo, assignments, HST, etc. 
  • When a new condominium project goes on sale to the public, the good units are already sold, in most cases condos are already 50% sold  by the time the public is able to purchase. The ONLY WAY to get the best units, at the best possible price is by getting in contact with someone who has better access to the pre-construction before it goes on sale to the public. 
  • Many new buyers tend to purchase a pre-construction directly from the builder, and those salespeople that take you through everything, work for the builder; not you. Their job is to get you to pay the highest price and what\s in favor for the builder. The builders’ sales team is not trying to get you the best price, they are not trying to negotiate with you, they wont really take you through the contract, on top of many more things that are not in your favor.
  • When you use a Realtor to buy a pre-construction condo, there is a commission that the builder will pay the Realtor which usually varies. If you do not use someone that has your best interests at hand, those commissions will go to the builder’s sales team, or in some cases the builder. 
  • A Realtor can negotiate for you, from upgrades to caps on closing costs, and much more. 

If you decide to use a Realtor to buy a pre-construction condo, make sure you discuss with someone who knows pre-construction development and has access to details on the particular condo you’re interested in. 

For more information on pre-constructions, text, email, call or contact us at anytime to get more details of how the process works.

And if interested in purchasing or investing in a pre-construction condo, do not hesitate to contact us for our assistance. We will be sure to find you a development that’s best for you!