Pre-construction condominiums have become a very popular form of investing. GTA condo prices were up 2.8% year-over-year, to $461,281 according to the Toronto Real Estate Board's figures. And prices will only keep going up, as record land costs and the introduction of new development charges create unprecedented cost pressures for those developing the future supply of new condos, units that won't be available to consumers for another two years. A total of 27,217 new condominium apartments were sold across the Greater Toronto Area in 2016, rising 34% over 2015 to a new high. Remarkably, sales totals topped the previous record set in 2011 on much fewer new pre-construction launches (18,466 in 2016 vs. 28,204 in 2011). Activity ended the year strong with 7,422 sales in Q4-2016, an 18% annual increase. The strength in demand combined with a 6% decline in new launches last year pushed unsold inventory in development down by 47% from the end of 2015 to a more than 10-year low of 9,932 units, which equaled only 4.4 months of supply (a balanced market for new condos is approximately 10 months of supply).
Buying pre-construction means that the buyer invests in a unit before the project is actually built. There are a number of ways
to get investing in real estate, but pre-construction real estate is one of the fastest growing with some of the fastest and
highest returns. Buying a condo at blueprint stage can net you savings over buying a resale unit. But there are other differences, too.
Purchasing a condo (in many cases) is a more affordable and desirable option than a freehold home, especially in Toronto's core. According to the National Bank's chief economist, Stéfane Marion, "The single-family home market has become unaffordable and that's the reality for markets such as Vancouver and Toronto". That has pushed many first-time buyers into the condo market, which has actually become more affordable for such buyers because of an abundance of supply, explains the Globe and Mail.
Here are a few things you need to know:
An assignment is a sales transaction where the original buyer of a property (the "assignor") allows another buyer (the "assignee") to take over the buyer’s rights and obligations of the Agreement of Purchase and Sale, before the original buyer closes on the property (that is, where they take possession of the property). The assignee is the one who ultimately completes the deal with the seller. In other words, an assignment clause allows the buyer of a home to sell the place before they take possession of it. Once the building has been registered you can transfer the ownership title. Until then, it’s just the sale of a contract, but as you will see, there are many advantages to these kinds of sales, for both the buyer and seller. Keep in mind that assignors may have to pay a fair amount of tax on any profits they received from the completed sale. Most builders allow assignment sales. When done properly, assignments are legal and can be a useful tool for buyers and sellers. An example of this would be a situation where a buyer's financial or personal situation changes before closing. Assigning allows them to pass along the contract to another buyer, without backing out of the deal with the seller. However, there are some rules in the original purchase agreement that must be followed. They are also more complicated than a regular sale because a mortgage cannot be obtained on the closing of the transaction, only once the building has been registered. Other issues such as occupancy, reimbursement of the seller's deposits and more must be taken into account.
Try to negotiate a clause in the sales contract that gives you the right to cancel the sale if unemployment, injury or other drastic circumstances prevent you from closing. This could save you tens of thousands of dollars down the road.
- Cooling Off Period
Yes, you can change your mind. In some jurisdictions when you have second thoughts, you can cancel the purchase of a pre-construction condo – and get your entire deposit back – during a specified "cooling off period." In Ontario, every purchaser of a new condo has 10 days to reconsider their purchase. Note these are calendar days and not business days. During the 10 day cooling off period, a Buyer should arrange to get financing pre-approval and have the agreement reviewed by their lawyer. If the Buyer changes their mind (for any reason) during the 10-day cooling off period, they can back out of the contract and have their deposit returned without deduction.
- Deposit Protection
While the risk is low, developers have filed for bankruptcy in the past. That's why the Ontario government has regulated the Tarion Warranty Corporation to provide safeguards to all new home purchasers. When buying a pre-construction condo from a reputable developer, your purchase fees will include a Tarion Warranty Corporation enrollment fee that provides deposit protection of up to a maximum of $20,000. This way, in the unlikely event that the condo project is not completed, the financial loss will be less significant.
- You can lock in your mortgage rate ahead of time
Developers work with preferred mortgage providers, and if you qualify, you'll be able to lock in at today's low-interest rates, to come into play once you close on your condo.
- The Interim Occupancy Period
When a new condominium is ready for occupancy, the buyer gets the keys and can move in — but title will not be transferred for some months. The period between occupancy and the final closing, when title is transferred, is called the "interim occupancy period". During the period of interim occupancy, the Buyer does not yet own the condo; they simply pay the builder an amount roughly equal to what their mortgage payment + condo fees + taxes will equal. No transfer of land has yet occurred, and no mortgage has yet been given.
If your building is in the pre-construction phase, you'll likely have an Interim Closing. This happens when the city has designated the property as safe to live in, but it has yet to be officially registered, as the municipality hasn't done a final inspection. This means you are legally allowed to occupy your suite, but the developer can’t give you the "title" to your property. This is common, even expected during the process, so don't be concerned. Even though none of the buyers are technically taking ownership yet, they can enjoy their new homes and some of the amenities as well.
Summarizing the above said, your condo may be ready for move-in before the building is fully complete. If that's the case, the building can't be set up as a condo corporation, and you'll rent your unit from the developer, rather than owning it and paying your mortgage to the bank. For those on the lowest floors, that usually means they get to move in sooner, but will have a longer interim occupancy period than those above them. There is no way to say with certainty how long the occupancy period will be, but it normally lasts several months.
- Registration of the Condo or Final Closing
The occupancy period ends when the condominium is registered with the Land Registry Office and you receive the title to your property. This is also when you start paying your mortgage. Once the condominium is registered you must pay the balance of the purchase price together with any adjustments. You will then receive the ownership of the condominium and will be able to register your mortgage against the condominium and receive the money you have borrowed.
Once a building has passed all the city inspections and gone through all the processes to become a legal entity, condominiums are officially registered. During this registration period, condo ownership is transferred to the Buyers, mortgages come into effect and Buyers officially become owners (aka the closing). And again, there is no way to say with certainty how long the occupancy period will be, but it normally lasts several months. The registration period can take anywhere from 3 months to 2 years (though usually it happens 4-8 months after people begin to move in for the interim occupancy period).
- Condo Insurance
One of the most important factors to consider when purchasing a condo is how you are going to insure and protect your purchase. There are many types of insurance that you will need - some are mandatory, and may be included in your purchase price, and others are not. Included in your purchase are New Home Warranty insurance (if the unit is brand new or pre-construction), Standard Unit insurance and CMHC insurance (if you made a down payment of less than 20%). Insurance that is not included in the purchase price, but is equally as important, is comprehensive home insurance.
In most provinces, if you purchase a pre-construction condo or a brand new unit, you are covered under the New Home Warranty insurance plan. The full coverage is available for one year and covers the buyer against certain defects in work and materials. Generally, the fee for the warranty is included in the purchase price of the condominium, or it may appear on the statement of adjustments. The warranty program can be voided at any time if the homeowner fails to abide by the restrictions outlined in the program.
Standard unit insurance
A certain amount of your condo maintenance fees are allocated to the condominium corporation's Master Insurance Policy, which will cover damage to the common elements plus the "standard units". Standard Unit insurance differs from building to building, so it's important to understand how it is defined in yours. Commonly, the standard units are defined as the elements that your unit was supposed to come with. For example, if you upgraded the countertops in your condo and they were damaged in a flood or fire, the Standard Unit insurance would only cover an amount up to the price of the original countertops.
Home Insurance : Beyond the New Home Warranty insurance and Standard Unit insurance, it's important to get home insurance that covers: personal property, such as appliances and furniture; structural improvements that go beyond the Standard Unit insurance, such as the carpet and countertops; liability for harm you may cause. This protects homeowners against any financial burden that arises if they unintentionally cause someone bodily harm or property damage at home or anywhere in the world; and loss assessment. This protects homeowners from the rare case that your condo building's insurance does not entirely cover an amount that the building has outstanding, and the excess damages are passed onto the individual owners. These four components make up what most insurance companies call a comprehensive coverage plan. Consult your real estate lawyer to determine if there is any additional insurance that you may need for your particular case.
Mortgage default insurance, more commonly known as CMHC insurance, is mandatory for any mortgage where the buyer has put down less than 20%. This insurance is purchased to protect the lender, should you ever default on your mortgage. The premium rate is between 1.75 per cent and 2.75 per cent, depending on how much you put down. It is added to your mortgage loan and paid out over the life of your mortgage.
If you plan on renting out your condo, you may want to consider purchasing additional insurance that will cover any lost rent that arises where the building is at fault. This will not cover you if you simply cannot find a renter.
- Some pre-construction condos are delayed
Builders have the right to delay for all sorts of reasons and for a surprisingly long time. The actual delays and builder penalties (if any) are outlined in the agreement of purchase and sale. While delays can be caused by inconveniences that are beyond the builder's control (such as labour strikes or poor weather conditions), top-rated condo builders will always make it their mission to stick to the development timeline as closely as possible. Having that in mind, plan to move in six months later than the original move-in date. But have a backup plan in case delays push into the one-to-two-year mark. While this can be true, it's not the norm, especially if you do your research to ensure you're buying from a reputable builder with a solid track record.
- There could be differences in what it looks like and what it did in the videos and model show rooms
Builders have a fair amount of leeway to make changes to the units and buildings, even after they have pre-sold them. That indoor-outdoor pool may end up fully enclosed, and those rustic-urban red bricks may end up a chic grey instead. Buyers are protected from any "material changes", but you might be surprised to find out what is and is not considered "material". Read the sales agreement and be prepared to be flexible. If you're purchasing your condo from a widely respected developer backed by years of experience and completed projects during the pre-construction phase, there is no need to worry that your suite will fail to meet your expectations, it ensures that the suite you're purchasing and the building amenities will align with your vision.
- Bottom line: Buying a pre-construction condo offers excellent value, but do your research first to get the right deal for you. For more information on what buyers should understand and keep in mind when thinking of purchasing a newly-built condo from a developer check the Consumer Protection Ontario awareness program from Ontario's Ministry of Government and Consumer Services.
There are any number of reasons why investing in pre-construction real estate is something to seriously consider. Pre-construction condominiums are some of the hottest pieces of pre-construction real estate on the market today. You can find them just about anywhere, however there are some key locations that are experiencing a preconstruction real estate increase due to the higher demand for housing in these areas. There is HUGE demand for the projects every year where investors feel that they can get the best returns. Many realtors invest in multiple new condos themselves and there are a variety of reasons that they make this their investment of choice.
- The first reason why pre-construction real estate is something to consider as a smart way of investing is lower initial prices. The key is to purchase a preconstruction home or condo at the beginning of the sales launch. This is generally when the builder offers the lowest price. This will allow you to place yourself in a position to make a considerable return on your investment, appreciation potential.
- The great demand for condos in prime locations means that you don't have to wait nearly as long to see a return on your investment than if you purchased a home or property post construction, which provides for faster returns. It is usually easier to rent or sell a never lived in condominium or home than it is to sell one that is older. Especially considering the fact that you are first owner of the unit and you get to customize certain things (such as appliances, cabinetry, flooring).
- One of the best benefits of getting into pre-construction real estate is that you get the opportunity of instant equity. This means you do not have to wait a year or two for your investment to show a return on equity it does it right away from the time you start and sign the agreement of purchase & sale.
- There are a number of incentives that can usually be had in the pre-construction real estate investment market. Often times, a developer will offer extras in order to keep investors or to gain the investors initially. These incentives can greatly increase the value of the real estate that you are looking to invest in. Some incentives may include upgrades, appliances, furnishes or direct credits off the purchase price. All of these incentives can add to the value of the property.
- You are able to purchase and invest with low deposits allowing for big opportunities to leverage your money. Deposit usually adds up to 20 to 25% of the purchase price by the time of occupancy, depending on the builder's deposit structure. Waiting and the power of leverage. You've bought, your money is now invested and the waiting game starts. Closing is years out, and there are construction delays (which can be pretty common). The value of your condo continues to appreciate at a higher than average Toronto rate, giving you a very nice return on your 15-20% down payment.
- There is no mortgage or loan required during the duration of construction – this is almost like getting an 80% interest -free-loan for the duration of construction on an appreciating asset. To purchase a condominium at $350,000, your investment is just $70,000 (20%). For a condominium that is $400,000, your investment is $80,000 (and so forth). From an investment standpoint, it means that for every dollar that you put towards the condominium, the developer is putting in $4. It means that you essentially have an 80% interest free loan from the developer for the duration of construction on an appreciating asset.
- And last but not least, managing multiple condominiums is a passive form of investing and can be done with very little man hours.
There are dozens of new condo launches every year and it can be daunting to look at all the options and decide which projects you should invest in. The truth is that less than 5% of new condo launches are worthy investments and meet our criteria that we then take to our investors. Identifying the best new condo project is hard, but easy. What we mean by that is that while it can be daunting, if you focus your efforts and use certain criteria then that large list of condo projects very quickly becomes very small. That criteria is nothing groundbreaking, and just goes back to real estate 101 – the investment needs to be by a strong developer, in a great location and offer incredible value. Below is a quick venn diagram of how these three critical aspect of a new condo project interplay with each other.
- DEVELOPER – Always buy from a reputable developer
It is understood that buying pre-construction means that you are buying a piece of paper with a promise to build what was marketed some time in the future. A big part of the risk of investing in pre-construction condominiums is trusting that the developer will deliver what they promise, when they promise. More importantly, perhaps, a good developer will be by your side if there are issues that arise once the project is complete.
How do I know if the developer is reputable? There is no single source that tells us if a developer is reputable or not. Platinum Agents tend to have inside knowledge about which developers are reputable in the industry and which are not. There are a handful of useful resources out there that a buyer can look at including TARION (the third party warranty corporation that every developer answers to. They oversee any complaints and issues that buyers may have had with a builder in the past. You can search for the builder on their Ontario Builder Directory which highlights how many homes they have built in the last 10 years and whether they have had any claims with Tarion in the same period. TARION also have two annual awards: The Homeowners' Choice Awards (voted by the homeowners) and the Tarion Awards of Excellence.
- LOCATION – Always buy in a location with potential
Everyone knows the old real estate adage "location, location, location" and that rings true when investing in pre-construction. It is important to understand that when you purchase a condominium, you are investing in a lifestyle. If you understand that fundamental then it becomes much simpler to pick out what makes a great condominium location. When looking to identify a neighbourhood and condo developments potential, consider some of the following advice:
- Always check out the WalkScore and TransitScore. They give great insight into what is nearby the condominium
- Close to Jobs – many people are now looking to live closer to work and as a result it is important to focus on areas nearby major employment hubs including: Financial District, Hospitals, Universities
- Close to Universities – University students and faculty are a great source for rentals. Condominiums nearby Universities often give great monthly cash flow from a rental perspective and are very popular investment options
- Close to Transit – transit lines are becoming increasingly important. A located close to key transit lines (especially subways or streetcars) are very important for new condo projects
- Look for investments to make the neighbourhoods better – look where the Government and developers are investing to improve infrastructure (example, the newly proposed Downtown Relief Line Project in Toronto’s East End.Line), or to create brand new neighbourhoods (such as Regent Park, East Bayfront, Yonge & Eglinton, Vaughan Metropolitan Centre which are all undergoing huge change)
- VALUE – Always know your numbers
When you're evaluating your new condo purchase, you need to evaluate three different pieces of the puzzle to make sure you're getting the full picture.
- Analyze vs. other pre-construction condo projects available
The first step is to identify other condominium projects that any potential buyer might also look at. You are looking for three key pieces of information.
- Percentage sold for nearby projects – if other projects are holding a lot of inventory, this could be a bad sign or a red flag;
- Price of available units;
- Price of available units compared to subject property;
- Analyze vs. resale condominiums in the area
The next step is to take a look at how the pricing compares to the resale market. This is one of the most important pieces to analyze because it tells us what the actual market of buyers is paying to live in this neighbourhood TODAY.
- Analyze the rental market in the area
Analyzing the rental market helps us determine an approximate rental rate so that we can run predictable cash flow analysis to calculate the yield on the monthly rents.
- Analyze vs. other pre-construction condo projects available
Olexandr Nesterenko @ VIPCONDOCAPITAL.COM is one of the few privileged Brokers to have built a relationship with the TOP Developers and
will have guaranteed front line access to the most condo projects. Our priority is to provide you with True Platinum Access & VIP
Experience. Registering with us confirms that we will be adding your contact details to our VIPCONDOCAPITAL database, keeping you informed
as the information becomes available. Once the developer provides us details such as project launch date, floor plans, prices, deposit
structure, sales brochure and a unit allocation worksheet, you will be provided with all this information. To get the first access and
to become a Platinum VIP Buyer. Get to the front of the line, fill in the registration form today.
If you're purchasing a pre-construction condo and have some unanswered questions don't worry, you're not alone. Browse the most popular questions and answers asked by first-time and veteran condo buyers alike.
- Why should I buy a pre-construction condo and not a resale condo?
Think about how nice it is to own something new. A lot of people prefer to buy brand-new, whether it’s a new car, a new phone, or a new home. People are attracted to the latest, most modern things in life. Think about how nice it would be to own a condominium suite that nobody has lived in yet, and use amenities that are freshly-installed.
Another reason is that the purchase price of a pre-construction unit is often cheaper. Additionally, appreciation is higher and more rapid because the structure has just been built, compared to a resale unit which has already appreciated somewhat.
You will also be the first person to occupy the space; the first person to use the new, state-of-the-art appliances, the first person to enjoy the view from your balcony, the first person to relax in your new soaker tub. For many residents, one of the best parts is customizing your own finishes and upgrades, which can only be done in the pre-construction phase.
- Why do I need a Real Estate Agent when I can go straight to the Builder?
Buying real estate is one of the largest purchases you might ever make, so we don't need to tell you that it’s not something to take lightly. As platinum brokers, we protect your interests by representing you, not the developers.
Keep in mind that the on-site sales team works directly for the developer, so they're interested in selling their project and their project only.
We, on the other hand, are here to support you. We'll guide you through the complicated process and make sure there are no surprises. Because we specialize in pre-construction, we can educate you about the developer, the site plan, different layouts, market trends, and the lease process if you’re an investor. We can also show you other options in the area, something the developer's sales team likely won't do.
One of the biggest perks is that we have access to these projects before they're released to the public, giving you first choice of suites at the lowest price. By the time the developer is selling to the public, many of the units will likely be sold and the remaining inventory will have increased in price.
Another advantage is that using a platinum broker doesn't cost you anything, as we get paid a commission by the seller, not the buyer.
- Where is the best place to buy a condo to make the most on my return?
There is no cookie-cutter answer to this question. Why? Because every buyer, neighbourhood and time frame is different.
It boils down to a few main factors: your intentions, price range and lifestyle. You might want to call your new condo home, or you might want to lease it out and use it as an income property, and those can have very different outcomes.
- Intention: If you're an investor, we will provide you with market research and statistics to help maximize your return on investment. If you intend to live in your new unit, we'll get to know you and find you a home that fits your lifestyle now, yet provides long-term value.
- Affordability: We can provide you with several options with your budget. Pre-construction condos usually require a
down payment equal to 20 percent of the purchase price, although the deposit structure allows you to stagger your payments
over the pre-construction period.
Whether you're living in your space or leasing it out, you may qualify for HST rebates.
- Lifestyle: We have access to a wealth of projects at the platinum stage, which allows you to shop and compare options. Once we get to know you, we can narrow down choices based on your wants and needs. Do you prefer sleek high-rises or cozy boutique buildings? Waterfront views or city skyline view? Would you prefer a ravine in your backyard or the city's hottest restaurants?
- What type of units are most popular for investment?
It's hard to go wrong with one-bedroom-plus-den and two-bedroom units, as they tend to attract more professionals and young families. Studios generate great rental income and are often popular with students, but may take somewhat longer to sell in the current market.
- Should I buy parking with my unit?
Parking spaces in the downtown core can range from $40,000 to $80,000 for one spot. Can you see yourself living here in the next 5-10 years and is a car a necessity? If the answer is yes, then you should consider buying one. Just like the appreciation of a unit, you will likely be able to sell your parking space for a higher price eventually.
If you are strictly an investor and you are buying a one-bedroom unit in an area with an excellent walk score, save your money and pass on a parking space. For a slot that costs $50,000, it will take you approximately 20 years to pay it off if you rent it out for $200 per month. If, however, you're buying a two-bedroom or three-bedroom and anticipate renting to a family, or if you buy in a neighbourhood where having a car makes commuting easier, it might be something to consider.
- Which exposure is the best for resale?
Often, south-facing views make a great option for resale, provided they’re not obstructed. Anywhere you can see the waterfront, the CN Tower or the downtown skyline will be extremely popular with buyers. If you are choosing to live in your new home, ask yourself: do you like morning sun? Consider an east exposure. For those who like afternoon sun, consider a west-facing unit.
- Can I own multiple properties in the same building?
Yes! You can definitely own multiple properties in one building, although the government will ask you to designate one as your primary residence. Any additional properties are considered an investment and may be subjected to HST at final closing.
If you're purchasing a property for an immediate relative to use as their primary residence, you may qualify for an HST rebate.
If it’s an investment property, we can assist you with applying for rebates as well.
- What should I do if I’m not 100% sure about buying this last unit you have for sale today?
Buy it!!!! Remember, you have a 10-day “cooling off period” to think it over and if you change your mind during this period, you don't face any financial penalties. But you know Murphy's Law: the moment you like something, there are two more people wanting the same thing.
If you are 90% sure and it's the last model available, consider buying and take advantage of those ten days to evaluate your choice. We've been in so many situations where our clients weren't sure and hesitated. The next day they came in and said they wanted to buy it, but the suite was already sold. The cooling off period is there for you, use it to your advantage.
- What is a "Cooling Period"?
The cooling off period is a time frame where the unit is reserved for you, but allows you the time and space to make a final decision. After signing the Agreement of Purchase and Sale for your unit, you have 10 calendar days to do your due diligence. During this time, we suggest you review the contract with a pre-construction lawyer, speak to your financial institution and get your mortgage pre-approval in place and ultimately, decide if you want to buy the suite.
If, during the 10 days you decide you no longer wish to buy the unit, you can simply cancel the contract by going back to the sales centre, returning all the documents and signing the Rescission Letter.
If you decide to go ahead with the purchase, congratulations! You’ve bought yourself a brand-new condo. This means that the contract is binding and your first cheque is cashed on the 11th day.
- What happens to my deposits if I change my mind?
If you're still in the 10-day cooling off period and you decide not to go ahead with the purchase, the builder's office will return your deposits in full prior to the end of the 10 days.
- I bought my unit 15 days ago, but my first deposit cheque hasn't been cashed. Why?
This is very common in newly-launched developments. The first cheque is usually cashed 10 days after signing the contract, but sometimes, if it's a busy release and the developer has sold a lot of suites in a short amount of time, your file will take longer to process and your cheque may take longer to cash. This isn't uncommon, so rest assured, your file will be processed as soon as possible.
- What else should I know about payments?
Avoid not-sufficient-fund (NSF) fees! This is easily forgotten by many buyers.
One thing we advise our clients to do is to set reminders on your calendar for the post-dated cheque withdrawal dates. It's very easy to forget and if you neglect to have the amount in your account, you will get charged a NSF fee, which could be anywhere from $250 to $750. Understandably, this is not fun, especially if you aren't expecting it. Plan ahead!
- Do I need a Lawyer?
Yes. You will need a lawyer to review your purchase agreement during the cooling off period, at the interim occupancy stage and at final closing. When you buy pre-construction, you will sign a lot of documents and it’s helpful to have a lawyer who specializes in these kind of purchases helping you navigate these documents. Please make sure your lawyer has experience with pre-construction purchases, as it's a different process than a traditional resale. A good legal representative will look out for your interests help you understand all your rights and responsibilities.
- How much will a pre-construction lawyer charge me?
The lawyers we work with charge an all-inclusive fee of $2,003.00 plus HST, which totals $2,263.00. If you decide not to go forward with the transaction following their review of the agreement, then a cost of $300 plus HST will apply.
Please note that if there are any special considerations (i.e., out-of-town signing, rush closing, additional mortgages, tenancy assumption, extension requests, etc.), additional costs will apply.
- What happens when I get a pre-approval for a mortgage now but in the next few years my financial situation changes
and I cannot close on the property, or decide not to?
We understand that things could change in the next few years. Usually builders will permit something called an "assignment" or "assignment sale." This allows you to sell your contract prior to the final closing. As your broker, we always ensure this clause is written into your purchase agreement, but be sure to read the contract carefully as there may be some rules surrounding it. Some developers will charge an assignment fee (ranging from $1,000 to $6,000) and some will waive this fee.
As long as the building has a certain number of units already sold (in most cases 75% or more) the builder usually allows this kind of sale.
- What is an Interim Occupancy fee?
During the "Interim Occupancy phase", it is safe and legal to live in your suite, but the building is still awaiting full completion and can’t be registered. This means you can live there (or rent it out), but you don't have ownership title and you can't yet register a mortgage.
This period could last anywhere from a few months to two years. During this timeframe, you will be paying a form of rent, also called "occupancy fees" to the developer. This is usually paid monthly and consists of interest on the unpaid balance of the unit's purchase price, an estimate of property taxes and maintenance fees.
- What should I expect at closing?
There are additional costs at closing, along with some specialized paperwork. Aside from the the down payment you give to the developer, be prepared to set aside four or five percent of the final purchase price for final closing costs. We'll guide you through this process so it seems less overwhelming.
- Will the condo fees go up every year?
First let’s clear something up. The amount you pay in maintenance fees is based on the interior space of your suite only. That calculation doesn't include your balcony or terrace.
The maintenance fee that is stated on the sales agreement is usually what you will pay for the first year.There is a condominium reserve fund that is in place for every building and it's up to your condo board to manage these funds and decide how they will be used. You can assist by joining the board and having input on these decisions.
During the first few years, there's not much to maintain, as the building is new. These days, in newer buildings, the maintenance fees often don't include Hydro, water or heating and cooling, which means you have control over your consumption. This could result in your fees staying lower, although keep in mind that it’s likely for fees to increase approximately three to five per cent a year to cover inflation.
- Can I use my RRSP for my down payment?
One great source of funding for the down payment on your condo is your Registered Retirement Savings Plan (RRSP). The Canadian government's Home Buyers' Plan (HBP) allows you to borrow up to $25,000 from your RRSP tax-free for a down payment. However, this is only an option for first-time homebuyers and, since the HBP is considered a loan, it must be repaid to your RRSP within 15 years.
- Do land transfer tax credits for first-time buyers apply?
If the condo you are purchasing is the first home you have purchased, meaning you have not purchased another home prior to purchasing your condo, then you are entitled to land transfer tax credits.
- Is a home inspection necessary when purchasing a new condo?
When you buy a brand new condo, your builder will give you pre-delivery inspection (PDI). The PDI will include a walkthrough of your unit with a representative from the builder's company, giving you the opportunity to record any damaged, missing or incomplete features that you see. Even after a PDI, though, you may still want to consider getting a home inspection done on your new condo.
- Do I need a real estate agent specializing in pre-construction?
Buying a pre-construction condo is vastly different from buying a resale condo. Specialized agents know exactly what to look for and will have your best interest in mind. They can also help you negotiate a better deal on the deposit structure, closing costs and unit upgrades. Another benefit is that specialized agents will often be given VIP access to units, allowing you as a buyer to see it first, which is especially important in a competitive market like Toronto.
- When I purchase a pre-construction condo, do I pay the interest rate that I was quoted when I received my pre-approval or the
current rate when the mortgage starts?
Good question. Most lenders only offer a rate hold on their pre-approvals for 30-120 days; this would be sufficient if your unit would become ready for you to take ownership during that time. However, if your unit won't be ready for a few more months or even years, the mortgage rate you are quoted for your pre-approval will not be the rate you get when your mortgage actually starts.
With that being said, most pre-construction condo buildings will have representatives from one or two of the major banks who offer specialized mortgage products that include capped rates. The mortgage rate they offer will likely be higher than what is available today, but could be lower than what is available to other buyers when you finally take ownership. With a capped rate, you are guaranteed to pay the lesser of the capped rate and the current mortgage rate available at the time your mortgage starts.