5 Things you should know when choosing a Preconstruction Condo
By Todd Rowley
Toronto is one of North America’s leading markets for pre-construction condos. As Canada’s fastest-growing city, Toronto boasts 120 cranes in the skyline at any given moment, working to make your condo and home-ownership dreams come true. Yet, the city remains 19,000 units short of the demand.
Purchasing a pre-construction condo is one way to get in on the ground floor of a newly constructed condominium in the bustling metropolis. But what is a preconstruction condo? And what do you need to know?
Essentially, purchasing a pre-construction condo means buying on the promise to build. A developer sells units before the building is constructed. As a buyer, there are few things you should know.
1) Builder Reputation
Investing in something that hasn’t yet been built involves some risk. For this reason, it’s crucial to find a trustworthy developer. Explore the various builders and determine if previous projects were completed on time, have maintenance charges changed since the building was completed, and consider past reviews posted online.
2) Deposit Structure
Let’s take a look at common deposit structure if you decide to purchase a condo that costs $750,000 with a 20% down payment:
- $7,500 with the offer
- 5% of the purchase price minus the initial deposit ($37,500) within 30 days
- 5% ($37,500) within 60 to 90 days
- 5% ($37,500) within 90 to 180 days
- 5% ($37,500) at occupancy
By the time you move into your unit, you will have paid $150,000 (20 percent), according to the aforementioned deposit structure. When you move in, there’s a good chance your condo won’t be registered, so you’ll have to pay occupation fees. The mortgage from your lender will pay the last 80% of what you owe once your unit is registered.
Your investment in a preconstruction condo will come with a number of fees that can’t be overlooked. You can expect condo fees to increase in the first two years of your build due to the realized cost of operating the building. Building closing costs, or builder adjustments, incorporate development and education costs, HST on appliances, and utility connection fees which can increase your costs by 1-3% of your original purchase price. Keep in mind that you will likely need to contribute two months of condo fees to the reserve fund.
4) Delays are Inevitable
Construction delays are more likely to occur with condominium projects since they take a lot longer to finish than single-family homes. It’s likely that your builder may set a Tentative Occupancy Date when it comes to determining your move-in or “occupancy date.” This enables them to postpone the date more than once as long as they provide you with adequate written notice before each delay. You can read the addendum that is included with your purchase agreement to see how occupancy dates might be extended, when you can quit your contract due to a delay, and whether you might be entitled to compensation for a delay under the warranty.
It’s often said that the only constant is change. With preconstruction condos, it’s no different. The layout of the units, the facilities, and even the site design are all subject to change. Although contracts make it clear that the final product may differ, builders use their “best-case scenario” in their marketing materials. Modifications to amenities like gyms, spas, and pools are less common but disappointing alterations in a builder’s plan. Since they are recognised for their luxurious condos with many amenities, larger developers rarely eliminate amenities, but smaller developers occasionally need to do so in order to keep the building profitable.
Be sure to do your homework when making the decision to invest in a presconstruction condo. There’s more on the line than your typical home purchase, and the level of commitment is higher than a usual purchase.
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