The process of buying a Toronto pre-construction condo can be a bit confusing compared to a traditional resale purchase, but it doesn’t have to be. We’ve selected five frequently asked questions our clients have asked when buying their pre-construction condos.
1. IS MY DEPOSIT PROTECTED?
Yes, your deposit is protected in the builder’s trust account. It will accrue minimal interest during the course of construction starting the day your deposit is received until the property takes possession three to four years later.
The interest rate they are required to pay is 2% per year below the Bank of Canada’s overnight bank rate. Which, as it stands, is currently 1.75% meaning you actually don’t earn any interest. If, in the rare instance, your Toronto pre-construction condo doesn’t proceed, you will have your full deposit returned to you along with interest, if any.
2. WHAT IS THE DIFFERENCE BETWEEN REGISTRATION AND INTERIM OCCUPANCY?
It’s at interim occupancy that you are able to move in or begin leasing your condo. Keep in mind that interim occupancy on lower floors will begin sooner than those on higher floors as it is being completed. While the building is ready for occupants there are still areas of the building that are being completed such as amenities and common spaces.
Registration typically occurs three to eight months after interim occupancy. Registration is when you’re closing costs are due and will include Land Transfer Tax, development charges, legal expenses and HST, if owing.
3. AM I ELIGIBLE FOR AN HST REBATE?
When buying a Toronto pre-construction condo, HST is included in the purchase price but things differ depending if you’re buying as an investor or as an end-user.
BUYING AS AN END-USER
Purchasers who plan on living in their pre-construction condo will have the HST portion of their purchase tied into their mortgage and will not have to have the money ready upfront.
BUYING AS AN INVESTOR
Purchasers who are using their pre-construction condos as investments will need to pay HST upfront to a maximum of $24,000. Your HST is owed when the building registers with the city, typically three to eight months after interim occupancy. Your lawyer can file for a full HST rebate, refunded approximately 4 to 6 weeks later, provided you have a one year lease in place.
4. WHAT IS THE DIFFERENCE BETWEEN MY MORTGAGE AND OCCUPANCY FEES?
At interim occupancy you will begin paying occupancy fees because you haven’t yet taken possession of the property but the builder is allowing you to occupy it. Occupancy fees include condo fees, property taxes, and the interest portion of your mortgage.
When the condo building registers with the city, typically three to eight months later, the title is transferred into your name. Now that you have taken possession of your condo, your mortgage begins in lieu of occupancy fees, which will now include the same components as occupancy fees as well as the principal portion in the payment.
|Principal + Interest|
5. WHAT ARE THE RULES AROUND BUILDER DELAYS?
It’s good to go in with proper expectations regarding the projected occupancy of a pre-construction condo. Most pre-construction condos will take three to four years to build but there can be delays. Your real estate agent will know which builders have better reputations for being on target with their projected occupancy dates.
Builders are governed by Tarion which enforces the Ontario New Home Warranties Plan Act and Regulations. This act stipulates different requirements that mandate builders to let purchasers know if there will be any delays. They owe different amounts of notice depending on where they are in the construction process.
If you’ve been thinking about buying or investing in a pre-construction condo, let’s talk. I have twelve years of experience in investing in the Toronto pre-construction market and have six investment properties of my own. Download my free Guide to Investing in Pre-Construction Toronto Condos for an in-depth overview on the pre-construction process, expected returns, and so much more.
For more tips on investing in pre-construction condos, read “How to Spot the Right Pre-Construction Deal in Toronto”