THINGS TO KEEP IN MIND IF YOU ARE BUYING PRE-CONSTRUCTION

Over the years our team has sold a fair amount of pre-construction condos.  It use to be a good deal, slightly below or at market value and once completed you could easily have seen values increase $50,000.  Times have changed and while pre-construction can be the right fit for many investors or first time buyers. There are a few things that are missing in those glossy brochures.

Here are things to think about if you are buying pre-construction in 2020 and all the hidden fees.

  1. Deposit– are you putting this deposit down in cash? Deposits are usually 20 percent in 5 percent increments over 6 months with the last 5% due on occupancy. It really does not make sense to borrow the deposit as you will be paying interest on it until the building is built and closed. If you are one of the first buyers could mean up to 4 years, 4 years of deposit interest could add up to tens of thousands of dollars.  To give you perspective, I bought my first condo at 23 single, 4 years later at 27 I was married and not yet moved into it as it still wasn’t ready.  Sales office had told me it would be ready in a year from purchase…
  2. Adjustments, this is a page which outlines all your closing costs.  Average closing costs for a 1 bedroom 600 foot condo use to be around $15,000 this is over and above any land transfer tax, lawyer fees etc… This is only for new condos and is in addition to your purchase price.  Now there is a new addition to these closing costs as local councillors have stepped in and added Section 37 which allows them to approve buildings that otherwise would not get approved if the builders pay an extra fee.  This fee is then collected by the local government to put in a park or community centre etc..BUT who do you think pays that fee? That is correct you,  the buyer.  Your $15,000 closing costs for Hydro, School funding etc.. now has a pesky addition of around $5000.00.  If you condo is larger you are looking at more money.  A good explanation of Section 37 is found here.
  3. H.S.T  Yes, your pre-construction condo is H.S.T applicable 13%.  You can avoid this if you are an end user and will live there, but if you decide to sell it before it is completed because hey you have been waiting for four years to be built  then you are on the hook for the H.S.T which is an additional 13% to your purchase price.  Click here for rules on H.S.T.
  4. Are you allowed to sell the condo before completion on assignment?   The builder usually lets you sell it to someone else for a fee.  However the new buyer is subject to their approval, the have to have the approved financing in place.  Keep in mind you could be subject to HST and capital gains.
  5. Who is buying in this building?  That is hard to find out.  Ideally you want a building which has a high proportion of end users, not just investors who are going to lease them to students or flip them before closing.
  6. What is the cost per square foot including adding parking and a locker and all the above costs.  How does that compare with current sales in the area in similar buildings?  Some of the new stuff is selling for $1600 a square foot and existing is $1000 a square foot.
  7. Occupancy period, take into account that you will have a period where you occupy your unit even though the building is under construction and you pay a rent to the builder equivalent to your mortgage, depending on what floor you are on, this could be 4 months to a year of payments that do not go towards your mortgage.  You might be able to rent it out during this time if you are an investor, check the fine print.