As housing in Toronto becomes more in demand, “pre-construction” is one term you may hear frequently. It refers to the preliminary planning stages before the actual construction process even begins. Some projects spend years in the works!
Buying pre-construction is a great way to break into the housing market when you have plenty of time and no set move-in date. It allows you to get today’s pricing on a property that could significantly appreciate in value as time goes on. However, like all real estate transactions, there are advantages and disadvantages. Getting all the information beforehand will help you make a wise financial investment.
Who Should Buy Pre-Construction?
In October 2022, the Ontario government announced a bold plan to create 1.5 million new houses and condos over the next 10 years. If successful, this will go a long way to alleviating the housing shortage in the province, particularly in Toronto. It will also allow many people to get in early by purchasing during the planning stages.
However, pre-construction is not for everyone. The primary hurdle is the wait, as most people need to buy and move within a limited timeframe. As mentioned, time is not a luxury you have with pre-construction.
It can take several years before a building is complete, and delays can happen. Are you counting on a specific move-in day? If so, you may be better off looking for a resale property with a definite closing date. You should only buy into a pre-construction project if you can afford to be flexible about the timeline.
On the other hand, it can be a perfect opportunity for those buyers who can afford to be patient.
- Young buyers still in school or living with parents can obtain their first condo years in advance. The extra time to save the necessary funds can mean the difference between owning and renting from a young age.
- Downsizers who plan ahead can also benefit from pre-construction. You can place your deposit now. You don’t have to worry about the balance until your transaction closes.
- Pre-construction is particularly attractive to investors, who can see potential gains as the value of the contract appreciates and through passive rental income.
Are you a first-time buyer, downsizer, or investor? Here are some informative posts just for you!
- A Guide to Buying Your First Home in Toronto
- 9 Questions to Ask Yourself Before Downsizing
- Should You Turn Your House Into an Income Property?
The Pros and Cons of Pre-Construction
Time delays are just one of the factors when considering buying a pre-construction condo. For example, there is always a chance of your project being cancelled altogether. If this happens, you’ll get your deposit refunded. But now you have to start the process over again, and prices may have increased. Here some other things to think about before making your decision:
- Buying pre-construction can be complicated. In a typical transaction, there are two parties that have to come to an agreement, the buyer and the seller. Pre-construction adds the builder into the equation, making it more challenging to negotiate a deal everyone is happy with.
- You will have to read the fine print. There are many rules and regulations to understand, and you should always consult a lawyer before signing anything.
- Closing costs are higher for pre-construction. New properties have HST, developmental levies, and interim occupancy fees to account for.
- Maintenance costs increase over time. You’ll enjoy fewer expenses when you first move in as everything is still brand new. However, nothing lasts forever, and you will eventually have to spend time and money on repairs and updates.
Still, Pre-Construction Offers Many Benefits for the Right Buyer
If you love the idea of buying pre-construction, don’t let the downsides discourage you. Everything in life has risk, and the potential benefits can outweigh any disadvantages you might face. What are the upsides? These are just a few:
- You own a valuable asset with minimal money upfront. A 20% down payment holds the property at today’s price. Over time, the value of your contract will almost certainly increase. By the time you move in, your property could be worth much more than you originally paid for it.
- You have plenty of time to get your financing in order. You only pay the balance once the building is complete and your transaction closes, giving you time to save and establish your financing.
- You can pay your down payment in installments. Typically, you place a small deposit, and the rest of your down payment is spread out over the next few years.
- You can look forward to pristine, modern, spacious living. The thought of living in a place untouched is appealing to many people. You will be the first to enjoy the sunrise from your balcony!
- Everything is covered by a Tarion warranty. All newly-constructed residences are covered for 10 years against any manufacturing defect.
- There are no bidding wars to contend with. Unlike resale units, increased competition can’t drive up the price. What you see is what you pay, unless you choose to upgrade certain features.
Choosing Your Upgrades
Speaking of upgrades, how do you know what to pick? You don’t have to select anything above and beyond the base price. However, you should be careful if you buy based on what you see in a model home. Many features that you think come with your purchase actually cost extra. The upgrades are where the developers make their money. It’s critical to read your agreement carefully to know precisely what you are getting once the building is complete. What upgrades offer the most value?
It will depend on your budget and what you want in your condo. However, the best upgrades to make at the time of the purchase are ones you will not be easily able to perform later. As a general rule, if an upgrade is going to be a considerable expense or a lot of work later, it’s best to take the plunge now. Otherwise, opt for the lower-cost base finishing, especially if you are trying to stay within a specific budget.
For example, you can always repaint or change the kitchen backsplash later. However, it may be worth adding hardwood floors now as it will be hard to match the colour later.
What Toronto neighbourhood should you consider? A few of our community posts might lead you to your new home:
- Best Toronto Neighbourhoods for Active Retirees
- Best Toronto Neighbourhoods for Foodies
- Four West End Neighbourhoods Perfect for Young Professionals
What About Assignments?
We know pre-construction projects can take a long time before they’re complete and you’re ready to move in. What happens if your life changes between now and then, and you no longer want the condo? Are you stuck with it? If your builder agreement allows for assignments, you can sell your contract to another buyer.
Assignments can be a tricky concept to understand. In short, when you’re buying pre-construction, you’re not actually purchasing a property. You’re purchasing the contract, or the option, to buy the property.
Problems can arise if you no longer want the unit because, technically, there’s no property to sell. Instead, you sell the contract, allowing you to recoup your deposit. You can even realize a profit on the assignment if the market turns in your favour!
Assignments can be a fantastic investment, but you should know what you’re signing up for. Our Ultimate Assignment Sales Guide can help.
Should You Work With a Real Estate Agent for Pre-Construction?
In a word, yes! It’s not required, but a real estate agent will work for you to protect your interests and ensure that the completed unit meets your expectations. Pre-construction contracts are even more complex than standard real estate transactions, so it’s critical to have an experienced and knowledgeable expert on your side.
There are many exciting new developments in the works in the West End! Do you want to know more? Reach out to us by email or call 416.769.3437 to start the conversation.
