Categoriestips & tricks

The pre-construction condo market in Toronto is once again booming. Before you fall in love with that model suite, here are 10 things you should know:

  1. The Deposit – While buyers of resale condominiums in Toronto often pay a 5% deposit upon signing the agreement, builders typically want much greater deposits to fund the construction – often as much as 15% or 20%. When the 
pre-construction condo

agreement is originally signed, a set amount ($3,000, $5,000, etc.) is usually required, and the balance to 5% is payable within 10 or 15 days. The remainder of the deposit can then be paid in a variety of ways, such as an extra 5% after 30 days, 5% after 90 days, and 5% after 180 days, or the deposit can be timed with the building phases (5 percent when they break ground, 5 percent on occupancy, etc.). The point is that a pre-construction unit will require a significantly higher deposit from the builder.

2. The 10-day cooling-off period – Every new condo buyer in Ontario has ten days to reconsider their purchase. It’s important to note that these are calendar days, not business days. A Buyer should arrange for financing pre-approval and have the agreement evaluated by their lawyer during the 10-day cooling-off period. If the Buyer changes their mind during the 10-day cooling-off period (for whatever reason), they can cancel the contract and receive their deposit back in full.

3. Waiting…waiting…waiting…waiting…waiting…waiting…waiting…waiting…wait Condominiums are rarely (if ever) built on time, despite the fact that builders will specify a projected completion date. Builders have the right to postpone projects for a variety of reasons and for an unusually lengthy period of time. The actual delays and builder penalties (if any) are detailed in the purchase and sale agreement, but in our experience, delays can take anywhere from 6 months to 2 years.

4.  Change is the only constant. Even after the units and buildings have been pre-sold, builders have a lot of leeway to make alterations. Builders have changed layouts, added or removed levels, and decided that the rooftop pool should now be in the basement. Buyers are protected against “material changes,” but you might be shocked to learn what constitutes a “material change.” Read the sales contract carefully and be willing to be flexible.

5. The Interim Occupancy Period is a period of time when a building is temporarily occupied. When the condo is finished and ready to move in, there is a ‘interim occupancy’ period during which the Buyer can take possession (in other words, move into the unit). The Buyer does not own the condo during the interim occupancy term; instead, they pay the builder a sum roughly equal to their mortgage payment plus condo fees and taxes. There has been no land transfer and no mortgage has been issued.

6. Condo fees are frequently made artificially low in new complexes. This is partly due to the fact that they are anticipated years before the condo is built, and partly due to the fact that they do not know the actual operating costs of the building. The cynic in me also wonders whether it isn’t just a sales pitch. Expect a significant increase in condo costs in new buildings within the first two years, typically 10-20 percent.

7. Condominiums are formally registered once they have passed all city inspections and gone through all of the formalities necessary to become a legal organization. During this time, condo ownership is transferred to the Buyers, mortgages are established, and the Buyers become formal owners (a.k.a. the closing). This term of registration can last anything from three months to two years (though usually it happens 4-8 months after people begin to move in for the interim occupancy period).

8. Closing Costs for Builders You’ll be accountable for a variety of closing charges that don’t apply to resale properties once the unit is legally registered and you close on the acquisition. All new building projects are subject to these ‘builder adjustments,’ which include development and education charges, HST on appliances, and utility connection fees. These builder closing expenses can easily equal to 1-3 percent of the initial purchase price (and development fees in Toronto are expected to double in the near future). Look to check if the original purchaser capped the amount of these fees when they originally negotiated the unit if you’re going to take over someone else’s contract via an assignment. Otherwise, make sure you save aside a large sum of money for closing charges.

9. Condominium Reserve Fund When you purchase a condo before it is built, you must give two months’ worth of condo fees to the condo’s reserve fund (the emergency fund). This frequently occurs while the store is closing.

10. HST New condos, unlike resale condos, are subject to the HST. If you’re an end-user (meaning you’ll be living in the apartment), you’ll almost certainly be eligible for a HST rebate (and most builder prices assume you are, and so this rebate is already factored in). There is a comparable (but different) rebate for investors, but you must rent the apartment for at least a year (and prove it!) to be eligible. If you don’t, you could end up owing thousands of dollars in HST at closing. The HST laws are complicated at best, so get legal assistance before buying a property to see if you qualify for the refund.

Purchasing a pre-construction condo is not as simple as purchasing a resale property. Remember that the salesperson works for the builder, and their duty is to negotiate the best prices and terms for the builder, not for you. If you’re thinking about buying a condo before it’s built, read this: Should I Buy a Condo Directly from a Builder?

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