Are you thinking of buying a pre-construction condo? You may like the idea of owning a brand new unit, but it’s important to understand the purchase process before you dive in. The steps involved differ from those you’d expect if you were buying a resale condo. Fortunately, learning about these differences can help you make the right decision—and secure a place that’s perfectly suited to your needs!
Here are some of the most commonly-asked questions about buying a pre-construction condo…
What are the benefits of pre-construction?
There are several major benefits of buying brand new. For one, you can forgo the stressful bidding wars that often occur in hot markets. You can also lock in a favourable interest rate at the beginning of the process—and then watch as the value of your unit grows. We’re talking about a very low-maintenance investment—and the protection of a Tarion warranty is nice, too!
Perhaps best of all, developers often offer customization options. If the idea of choosing your own colours and finishes appeals to you, pre-construction may be the right choice!
How does the deposit structure work?
While you can get away with putting down as little as 5 per cent on a resale condo, your pre-construction down payment will be 20 per cent. The good news? You’ll pay it in installments. That means more time to save up—another benefit of being a pre-construction buyer.
You’ll generally pay your remaining deposit amount in 5 per cent increments—at 30 days, 60-90 days, and 120-270 days. The exact timing will vary from one project to the next.
What will the timeline be like?
First comes the launch, then construction. Next up, occupancy—this is when you’ll get the keys to your unit (but you won’t own it in full quite yet). Finally, the building will be registered, and you’ll get the deed to your new condo.
The whole process is typically around three years, though it can take less time (or more). In other words, pre-construction is best for those who don’t foresee any unexpected life changes in the years ahead.
What is “phantom rent?”
There will be a period between the day you can move into your unit and the day when you officially take ownership. It’s what’s known as interim occupancy, and it can last anywhere from a few weeks to several months. During this time, you won’t be paying your mortgage. Instead, you’ll owe occupancy fees (also known as “phantom rent”).
The good news is, you’ll have access to your unit during this time (though your amenities and common areas may not be completed yet). You can also begin leasing out your space.
Will my unit be ready on time?
To be honest, delays happen—and they aren’t uncommon. Developers are allowed two extensions lasting up to 120 days each. After that, they must set a new date, and buyers are eligible for delayed closing compensation. If another year passes, you are entitled to cancel your agreement (within a 30-day period).
There’s no doubt that delays can be annoying, so try to factor them in if possible. You can also increase the likelihood that a building will be completed on time by working with an agent who knows which developers are most reputable!
Can I sell a pre-construction condo before it’s complete?
Life happens. If you realize that owning your pre-con condo no longer makes sense, you can make what is known as an assignment sale. Through this process, you can sell the purchase agreement to your unit. A word of warning: you’ll want to ensure that your contract allows for assignments—and that your developer signs off on it.
If you’re an investor, be aware of your tax obligations. Failing to pay what you owe on an assignment sale could land you in hot water, so make sure you speak to a financial professional with the right expertise.
Can I get an inspection?
Resale condo buyers often opt for a status certificate review instead of a full inspection. In contrast, when you’re buying a brand new unit, having it professionally inspected is part of the process! For more information about how it works, check out the Tarion website.
Pre-construction condos can be great investments, and buying one might turn out to be one of the best decisions you ever make. The keys to a successful purchase is knowing how the process works—and whether it suits your goals, preferences, and timelines!
Thinking about buying a pre-construction home? We have the expertise to guide you through the process—get in touch to learn how we can help!