What are the myths about buying pre-construction condos?
Purchasing a pre-construction condominium is a significant financial commitment. For starters, it hasn’t been built yet, so you’re making a purchase based on drawings of what the finished building and suite will look like. Second, unlike buying a freehold property such as a house, you must pay for maintenance, upkeep, and shared utilities in addition to the purchase price. That’s why it’s crucial to weigh all of the pros and drawbacks of purchasing a pre-construction condo before making a decision.
Unfortunately, many people’s thoughts are clouded by a number of widely held misconceptions regarding the condo buying process. Continue reading to learn the reality behind seven of the most common pre-construction condo misconceptions.
They are all expensive and over-priced
While the truth is that Toronto real estate in general has become expensive – and so too has Durham and the GTA. In many situations, buying a condo is a more reasonable and desired alternative than buying a freehold property, especially in Toronto’s downtown area. “The single-family home market has become expensive,” says Stéfane Marion, chief economist at the National Bank. And for many this might feel like an understatement. ” This is the truth for places like Vancouver and Toronto.” According to the Globe and Mail, this has driven many first-time buyers into the condo market.
While we can’t argue that they haven’t become more expensive, we can explain why. But, it’s a long-winded explanation and deserves it’s own article entirely. If you’re interested, we explain here why Toronto is so expensive.
When it comes to pre-construction condos specifically you need to work with an educated realtor who knows how to invest. Not all pre-construction buildings are equal. They all aren’t a great deal. Just because you buy at the first Platinum phase doesn’t mean it wasn’t an over-priced launch. Get yourself a realtor who will tell you the truth and guide you to appropriate investments.
It’ll be forever until your condo is ready
It’s a widespread misconception that if you buy a condo when it’s still in the planning phases, you’ll be old before you even walk through the front door. While this is sometimes true, it isn’t always the case, especially if you do your homework and buy from a trustworthy builder with a proven track record.
While delays might occur due to factors beyond the builder’s control (such as labor strikes or bad weather), top-rated condo developers will always make it a priority to keep to the construction schedule as closely as possible. Before signing on the dotted line for your new condo, make sure to verify the builder’s history on Tarion’s builder directory.
It’s also important to add that if you’re a long-term investor and not looking to flip your pre-construction unit. Then a long build timeline can actually be quite the advantage. With most pre-construction condos requesting their final 5% deposit at occupancy you can take advantage of a lower down payment during build. We also recommend you buy pre-construction condos for their equity gains rather than their cash-flow potential as many will run negative. While your loss in cash flow is considered a right-off a longer build time can often mean a shorter rental period.
You will need to make an initial deposit of at least 20%
For a Canadian buying a pre-construction condo apartment from a builder, a typical deposit is 20% of the purchase price (international buyers typically pay 35 percent). Now, if you’re purchasing a $500,000 suite, 20% is a considerable sum of money, especially when paid all at once. Fortunately, excellent, and reputable contractors do not need a one-time payment. Payments are generally spaced out over a period of time, in some cases up to years.
If the property developer fails, you will lose the money you invested
While the risk is modest, developers have already declared bankruptcy. As a result, the Ontario government has regulated the Tarion Warranty Corporation to ensure that all new home buyers are protected. If a project is terminated, the vendor is obliged under Condominium Act to refund all monies paid by the purchaser, plus interest calculated in accordance with the Condominium Act.
If the deposit monies are no longer in trust, then the purchaser has an alternative protection being the third-party backstop of Tarion and/or an insurance company. The purchaser can turn to Tarion for payment of the deposit or portion that has not yet been returned, up to $20,000. It is also possible that anything over $20,000 is protected by a third party major insurance company which has issued a deposit protection policy for the money.
You will not have any idea at all on what you will get
If you buy a condo from a well-known developer during the pre-construction period, there’s no reason to be concerned that it won’t live up to your expectations. Take your time exploring the sales center’s presentation room, paying great attention to the floorplans, finishes, and amenity renderings, and don’t be afraid to ask questions. You may also go to other buildings by the same developer to see what they’re like and get a sense of the style and mood to see if it’s something you’d enjoy. Purchasing a suite from a reputable builder with years of expertise and previous projects guarantees that the unit and building amenities will meet your expectations – should they be reasonable.
You will get a surprise bill at the time of closing
It’s easy to ignore the entire cost of ownership when seeking to buy a condo, which is more than simply the deposit and mortgage payments. Maintenance fees, property taxes, utilities, and other expenses must all be factored into the budget. Then there are closing expenses, which are an important factor to consider when purchasing a condo under construction. Land transfer taxes, meters, legal expenses, warranty fees, development levies, and administration fees are all included in the closing costs.
Development levies, in particular, have recently sparked debate in the media. To help support civic infrastructure, condo developers are required to pay specific development levies to governments. Developers frequently offer monetary donations to assist create public community centers and parks in exchange for authorized height or density increases. It’s crucial to find out how a developer handles these costs if you’re buying from them. Are they already included in the purchase price, or will they be added later?
A good builder will not try to hide any closing charges from you and will endeavor to include any additional fees in the suite’s pricing so that they may be factored into your mortgage payments. When comparing costs, keep this in mind. If one developer’s suite appears to be more expensive than the others, it doesn’t always imply you’re overpaying. It might indicate that all expenditures (including development taxes) are included in the purchase price, ensuring that there are no unpleasant surprises at closing. Be wary of developers that try to attract you with low rates; you could wind up writing a large check at closing.
It never hurts to do your homework and have a lawyer WHO REGULARLY DOES PRE-CONSTRUCTION AGREEMENTS look over the Purchase and Sale Agreement, Disclosure Statement, and Tarion Addendum (if there is one). This will help you to get the most out of what you invest in pre-construction condos. When you work with our team we’ll recommend someone great.
Property developers are not concerned about the buyers
While there are some developers who are only interested in making quick money on condo buildings, the assumption that all developers have the same aims is false. Many developers truly care about the end-user and their reputation.