A Beginners Guide to Pre-construction Condos in Toronto
Purchasing Pre-construction condos has become very popular in the city of Toronto. This article breaks down what you need to know about the condos
The cost of buying condos in Toronto is at an all-time high. The average resale condo is selling for more than $525,000 which is a 10% increase from last year.
Savvy buyers are now turning to pre-construction condos. The price isn’t lower than resale, but there are many perks that come along with it.
But you may have heard to stay away from the glitz and glam of new construction. We’re going to explain everything you need to know about buying pre-construction condos in Toronto.
Why Look at Pre-Construction Condos
Toronto is a world-class city like none other. Its population continues to skyrocket and there’s no ceiling to its growth. This means new construction projects are everywhere downtown and they’re not slowing down either.
If you’re an investor, pre-construction is the way to go. Vacancy in Toronto is less than 1% in some neighborhoods. High demand / low supply is one of the reasons condo prices jumped 10% from last year.
New condos in Toronto have a high vacancy rate so if you get in fast you’re getting a viable investment for the future. Even if you’re planning on living in the condo, not renting the space.
Pre-construction townhouses and condos appreciate in value and have amazing amenities. But that comes with a price. Here are the 10 things you need to know when buying pre-construction in Toronto…
One of the biggest differences between buying resale and pre-construction is the deposit. It’s common with a resale condo to pay a 5% deposit. With pre-construction, the deposit is 20%.
That figure is high, but it’s broken down into a deposit structure. An example is:
- $5,000 with the offer
- A balance of 5% in 10-15 days
- 5% in 30 days
- 5% in 120 days
- 5% in 360 days
- 5% due at occupancy
This is an example, it’s not set in stone. Some deposit structures coincide with the construction phases. For instance, 5% is due when they break ground, etc.
Be prepared to pay a larger deposit to the builder than you would if buying a resale condo.
2. Reconsideration Period
After your initial deposit, you have 10 calendar days in Ontario to reconsider the buy. This is the cooling off period. During this time, buyers can research appreciation value, the builder’s track record, and get loan pre-approval.
This is also the time to have your lawyer review the contract. If you want to back out during the cooling off period, your deposit gets returned and you won’t have penalties assessed.
3. Get Pre-Approved
When buying any type of real estate you should seek financing before looking for property. But sometimes a deal comes along you can’t wait on. You will also have an idea of what your interest rate will be which helps the planning process.
4. Expect Delays
The salesperson you deal with will give you a completion date. This will in your sales contract. But know ahead of time that there are often delays.
These delays can take anywhere from six months to a year. This is important if you’re in a lease and expect to move out by a certain date. You’ll need a backup plan in case this happens.
When you’re researching the builder, note the average delay period for their construction. You can find this in online reviews or with the Better Business Bureau in Greater Toronto.
Consider buying a delayed closing warranty. This could protect you under the Ontario New Home Warranties Plan Act. Speak to a reputable warranty company and find out what they cover if construction gets delayed.
5. Changes Will Happen
In most cases, the condo you close on won’t look like the renderings you saw when you signed the contract. Changes happen with new construction all the time.
You’re protected from the materials of the building changing but builders have a lot of leeway in the construction process. Read your contract so you’re familiar with what you’re agreeing to as far as changes to the building. Better yet, have a lawyer read over the contract and explain it to you in layman’s terms.
6. Interim Occupancy
After the construction is complete, you will move into your new condo, except it won’t be yours yet. This is the occupancy period.
The occupancy period is the time between when you move in and when the condo is an official and legal entity. This period lasts from 4-12 months. During this time, you’ll be paying rent to the builder.
The builder/developer needs the city to “sign off” on the property and other legal steps before it’s registered. When the condo registers, you’ll start paying your mortgage to the bank.
After the building passes all the inspections and is a legal entity, it’s registered. During this period, condo ownership transfers to you. This is when the closing happens.
Going back to delays, make sure you understand what happens if the building fails inspection or runs into other speed bumps. If you have a new contract during the occupancy period, make sure you understand what’s written about the registration process.
8. Closing Costs
When you buy pre-construction, there are many closing costs that don’t happen in resale deals. Referred to as “builder adjustments,” these fees include:
- Development and educational costs
- New home warranty enrollment fee
- Utility hook-up fees
- Assignment fees (if you sell/take over another contract before final closing)
- Occupancy fees
- Land transfer taxes
These fees can total 3% of the sale price. Keep in mind, many condos want two months condo fees to put into the reserve fund. This may be part of your closing costs as well.
9. Condo Fees Will Rise
Condo fees get estimated before the construction breaks ground, sometimes years in advance. The cost of maintaining a new building is low so the initial condo fees reflect that.
When the condo board figures out a concrete number on the costs to run the building, the condo fees will rise. Take this into consideration when planning your finances. Some fees increase as much as 20% in the first two years.
A new condo is subject to HST. If you’re an owner-occupant, you may qualify for an HST rebate. If you’re an investor, you’ll pay the 13% HST without a rebate.
Make sure your lawyer explains your individual HST situation so there are no surprises.
Find the Lifestyle You Deserve
Buying pre-construction condos in Toronto is growing in popularity but that doesn’t mean that all real estate sites are experts. We are.
Contact us today and let us help you find the lifestyle you deserve.