What is a pre-construction condo?
A pre-construction condo is precisely what it sounds like: a condo that has yet to be constructed. Pre-construction condos are sold before they are completed in order to fund the construction of the building, and are offered as individual units, just as existing condos are sold.
How can I confidently buy a home I cannot see?
For some, the thought of buying a home they cannot yet see or touch is disquieting. This, in part, is why pre-construction condos are particularly popular among investors and those looking to rent the unit. If your intention is to resell or rent a condo, you don’t require the same emotional attachment you’d like to feel when buying a home for yourself. Buyers who intend to live in the unit require something of a leap of faith.
You’re not going in completely blind
Though you obviously can’t visit a condo that isn’t ready, you don’t buy completely ignorant. Developers and designers work ahead of construction to create detailed floorplans, list out amenities, describe the design and square footage. This way, even though you can’t see the unit you’re purchasing, you can at least envision it, and in some cases, view conceptual images.
Why buy a pre-construction condo?
Though the concept eschews traditional retail teachings, there are numerous benefits to buying a pre-construction condo. From beginning your search to the day you’re handed the keys, the advantages of buying pre-construction are numerous.
Pre-construction condos tend to be cheaper than their traditional counterparts for a number of reasons. First, builders need people to buy early to avoid having empty units when the building is ready. There is also a discount for buying without being able to see the place.
New condos usually have new amenities. If your condo of choice has a pool, gym and party room, you can bet that they’ll be stocked with the latest equipment. The same goes for your kitchen appliances, laundry machines and bath.
The home inspection is usually covered
When buying a home, it’s advisable to have a professional inspect the wear and tear on the building. How are the pipes holding up? Are the floors damaged? Has the building ever had an infestation?
Because you can’t inspect a home that doesn’t yet exist, there’s no way to inspect the unit before making a deposit. Instead, the inspection is done afterwards, and is covered by a Tarion Warranty.
The down payment is relatively small
Buying a home in Toronto is expensive, and many people struggle to amass the capital needed to make a down payment. Pre-construction condos alleviate a lot of the pressure involved in this step of the homebuying process.
Whereas you traditionally need to put down 20% of the purchase cost to avoid mortgage insurance, your initial down payment on a pre-construction condo is a mere 5%. The remainder of the down payment is given in installments of 5% over the course of 12-18 months, with a final 5% paid when you move in. Stretching such a large one-time payment out over a year and a half can make a big difference to both residents and investors.
Pick a unit, any unit
If you’re buying a condo in an existing building, you’re stuck with whatever is for sale. That might be one or two units in a high-rise. When buying a pre-construction condo, you get to choose your floor and the direction your unit faces. First crack is given to those who get in earliest, so it helps to work with VIP/Platinum agents.
Avoid the condo war
Competition for condos in highly desirable places like Toronto’s downtown core can be fierce. Not only does this drive prices up, it can make for a stressful experience. Going with a pre-construction alternative eliminates the competition, inflation and anxiety of buying a condo.
Future value at today's prices
Over the long haul, home prices trend upwards. Even if they may sometimes dip, it’s rare to see anything but an increase when looking at the trend of a couple of years. Just look at what condos have done in Toronto lately. In all likelihood, a condo that sells for $500,000 today, will sell for more than that in three years. Even if it’s not yet constructed.
Buying pre-construction gets you a condo that will likely have increased in value by the day you take ownership. Few investments offer that sort of appreciation, especially when you only need to put down 20-25% of the sale value to acquire them.
You get a cooling off period
Builders are legally required to give buyers a 10-day cooling period after a deposit is made. During this time, the buyer can decide to cancel the deal. No reason is required. Whether you find a better deal somewhere else or simply change your mind, the cooling period entitles you to the entire sum of your deposit.
Earn more rent revenue
Rent tends to be higher in new buildings because they are unlived in and come with the newest amenities. These features, central to pre-construction condos, makes them ideal rental properties. If you are looking to purchase a pre-construction unit to use as a rental property, UrbanCondo will help you search and screen for tenants.
The other aspect is that you can’t get any newer than pre-construction. Newer buildings tend to yield higher rent, so buyers who intend to rent their unit receive higher monthly payments.
Finding the right pre-construction condo
You can’t hit the pavement and check out your options as you would during a traditional house-hunt, but you can get details from all the latest projects online. UrbanCondo provides you with several resources that allow you to inform yourself so you can choose the condo that’s the right fit for you.
View the latest listings
If you want to buy a house, you’re probably going to start by looking at some listings. Though comparable listings are rarer for pre-construction condos, UrbanCondo provides a collection of the latest opportunities. You can browse through available and upcoming offers to see what’s on, and what will be on the market.
Be the first to know about a new project
UrbanCondo is operated by Platinum real-estate agents who have long-running relationships with prominent builders all over the GTA. We’re often given priority for new developments, and can provide project details and initiate sales before anyone else.
A lot of times you’ll find websites that tell you how cheaply you can get a condo. What they neglect to mention are all the fees that come with making the purchase. Do you think they just happen to forget? They don’t. They’re purposely avoiding mentioning all the associated fees because they just want to make a sale.
UrbanCondo seeks to educate everyone who visits our site. That’s why we provide resources to help you understand and navigate the buying process: from choosing the right place, to calculating costs, to determining investment potential to just getting the jargon right.
Get the key details
UrbanCondo allows you to sign up for details for the project of your choice. When you’ve selected your project of interest, you’ll receive details about:
- Crucial dates
- Builder information
- Building and unit details
Having these details will help you determine whether a project is one that hits all the boxes on your checklist.
What to know about risk
It’s difficult to buy a home before you’ve seen it. We’re told to be meticulous when house-hunting, and choosing a pre-construction condo runs counter to this advice. That’s why UrbanCondo only works with builders who have proven track records of success. We ensure our clients know what they’re getting, even if they can’t yet see it.
Do I lose my deposit if I change my mind?
If you make a deposit on a pre-construction unit you are given a 10-day grace period to receive an unconditional refund. However, if you decide to walk away after the cooling period, you will forfeit your initial deposit.
Do projects ever fail?
It is possible that you purchase a pre-construction condo and the construction project is abandoned, but this is rare. The completion rate of condos that sell units before construction is well over 95%, and this is even higher among reputable developers.
What happens if construction is abandoned?
If construction is abandoned your purchase is voided. Obviously, you won’t move into a building that is never finished. In this unlikely event, your first question would no doubt be, “What happens to my deposit?”
Regulations are in place to protect buyers when buildings are not completed. The Tarion Warranty is a mandatory protection built into the fee of selling the condo, which ensures that buyers receive some of the money they’ve paid back to lessen any financial damage.
Do I get my deposit back if the project fails?
When you sign an Agreement of Purchase and Sale for a new condominium and give your builder a deposit, Tarion protects your funds for up to $20,000 while any deposit amounts are protected by the trust provisions of the Condominium Act. Be sure you obtain receipts for any payments.
Risk may be small, but when making a large financial investment – or looking for the perfect new home – caution is absolutely advisable. To mitigate the possibility of finding yourself in a scenario where your purchase is voided, make sure to do your research.
Choose a reputable builder
One of the best precautions to take is to buy from a builder that has a long and successful history of completing projects. Not only is a history of reliability good for peace of mind, it suggests the builder is well-funded. A quick online search will yield feedback from a builder’s previous projects and provide some information about the company.
Make sure you understand the process
Knowing about risk is one of the best ways to manage it. So educate yourself. Be aware of possible outcomes, and make sure you’re willing to accept them all as possibilities, even unlikely ones.
Talk to an agent and lawyer about the process
When making a big purchase it’s always good to have an expert or two in your corner. Finding the right agent and lawyer is key. Make sure you’re working with pros that care about their clients, not ones who are looking to get you to sign on the dotted line as quickly as possible so they can move on to the next buyer.
A lot happens between the day you start looking for a place and the day you take ownership. Here are some major events to be aware of, and a general timeline for when each event typically takes place.
The search begins
Beginning the house (condo) hunting process starts with knowing what you’re looking for. Determine the type of place you want (studio? Two-bedroom?), decide why you want it (a new home? A place to resell? A place to rent to tenants?) and figure out a realistic price range. If you have a strong preference for a certain location or certain amenities, you can narrow your search to ensure you’re only looking at options you’re truly interested in.
Finding the right unit
The best place to start your search is online. There are numerous websites that provide home listings, but lack a specialized focus. UrbanCondo specializes in pre-construction condos. If that’s what you’re looking for, there’s no better place to start looking than right here with us.
Getting the details
When you find a place that piques your interest, make contact. This is especially useful for pre-construction homes, because there are no pictures of the amenities or design, like there are for existing homes. You can sign up to receive information about the unit, timelines, prices and more, and this is the information that will help you decide whether the condo in question meets your criteria.
Duration of construction
Different projects have different completion dates. Typically, a building will be completed 3-5 years after units are made available. The precise time depends on the project, and is subject to changes. Owners are alerted to any changes made to the occupancy date.
Not everyone moves into a building on the same day, especially high-rises. Often, residents will move into units on the lower floors while constructions continues upward. Purchasing a unit on the first few floors can make a difference of moving in a year earlier than purchasing a unit on the top floor would allow you to do.
Getting mortgage pre-approval
To expedite the home-buying process, it’s a good idea to get pre-approved for a mortgage. This involves going to a bank or lender and getting written confirmation that you will be approved of a mortgage up to a certain value, should you request it. Builders and homeowners like buyers to be pre-approved because it’s one less potential complication. Mortgage pre-approvals expire after 2-3 months.
Getting a mortgage
Homes, particularly in Toronto, are expensive, and few buyers pay in cash. The overwhelming majority of buyers require a mortgage – i.e. a large loan that is paid back in monthly installments after the home is bought. But of course, that doesn’t mean you can get a home without forking over some money upfront. You still have to make a down payment.
Making a down payment (Deposit)
When you’re ready to commit to the pre-construction condo of your choice, you make a down payment. Whereas down payments for traditional detached homes and condos require 10% or more (20%+ if you want to avoid paying mortgage insurance), pre-construction condos require a comparatively low payment of 5%. However, further installments are required before taking ownership of the unit.
The pre-construction payment schedule
The initial down payment for a pre-construction condo is usually 5%, and is made within 30 days of your purchase. But prior to moving in, you’ll have to pay 20-25% of the sale price, over the course of 12-18 months. The following schedule is typical, but different projects may vary.
- 5% within 30 days of purchase
- 5% 4-6 months after purchase
- 5% 8-12 months after purchase
- 5% after 540 days or on date of occupancy (whichever is earlier)
Having the payment schedule spread out like this makes funding a down payment much easier than coming up with it on the spot. So while buying a pre-construction home requires that you delay your gratification, it is also far less jarring to your bank account.
Because you don’t actually take possession of a unit the day you pay for it, the closing process is slightly different for pre-construction condos than for a regular home. In this case, the closing date can most accurately be thought of as the date on which the first deposit payment is required.
Date of occupancy
This is the date on which the buyer is handed the keys to the condo and takes possession. In some cases, a final portion of the down payment may be required before this occurs.
Pre-construction condo fees
Buying a pre-construction home involves many of the same costs as buying a traditional home. But because a pre-construction condo has yet to be developed, payment and auxiliary fees do vary.
Standard homebuying costs
Though the process isn’t exactly the same, many of the costs involved with buying a traditional home are a part of the pre-construction buying process. Such fees include:
- Mortgage insurance
- Real-estate fees
- Lawyer and adjustment fees
- Land transfer tax (x2 in Toronto)
- HST (usually included in price)
- Property tax
Condo fees are paid to the condo board to fund maintenance and building projects. For example, if a condo has a games room with a gym, all that equipment is paid for by the residents via condo fees. New, especially pre-construction buildings, tend to have low condo fees. However, they will probably scale up in the first several years after the building is complete.
It’s a common misconception that condo units are covered by the building’s insurance. In fact, the building’s insurance only covers damage and liability outside the unit - in the lobby, the hallways, the party room, etc. To insure your own unit, you’ll need a personal insurance policy. Some buildings will not let you move in without proof of insurance, but in other cases, purchasing insurance may not be mandatory.
Development charges only apply to new constructions, and are one of the largest expenses associated with buying pre-construction. The cost cannot be rolled into the cost of the mortgage, and may change based on the expenses incurred by the builder.
The development costs associated with buying a pre-construction condo are not always absolute. You may be given an estimate, but that estimate will come with a disclaimer that it is subject to fluctuation. For example, if the estimated development charge is $20,000, the actual cost may wind up being $30,000 by the time all the work is done.
To avoid incurring surprising costs, you can cap the cost at a maximum. If this maximum is exceeded, the developer will be responsible for paying the overage. Make it a point to discuss capping costs with your real estate agent and lawyer to see what can and cannot be capped.