Important Factors To Consider When Buying A Pre-Construction Condo
Ready to buy your first condo? Congratulations! Condos offer many benefits such as amenities, convenience and parking. Plus, you don’t have to worry about taking care of a lawn or maintaining a three storey home with more bedrooms than you really need. With condos popping up across Ontario, it’s no wonder that people are vying to snatch them up before they’ve even been constructed.
If you’re looking to buy a pre-construction condo, there are certain factors to consider when making your decision.
The benefits of pre-construction condos is that the deposit is paid over a period of time, as opposed to providing 20% all at once when buying a resale condo. This grants you the financial flexibility if you wish to allocate the funds to other investments or give yourself some time to save up the required payments. Upon signing your agreement, the builder will require increments of your deposit to be paid over a set amount of time. Some companies will break up your deposit to coincide with the construction phases. For instance, you may owe 5% of the deposit upon signing the agreement and another 5% after 90 days, another 5% percentage after 180 days, and then the remaining balance on occupancy etc. You may not know that by working with a VIP Sales Representative connected to the project, it is possible to make amendments to your deposit structure with approval from the builder. Overall, the total deposit for a pre-construction condo is the same as a resale condo unit. Typically the deposit for re-sale is always 20% for domestic buyers, in certain cases it can be lower than 20% but you have to pay CHMC insurance.
The Rescission Period
Anyone who purchases a new condo in Ontario is allotted a 10-day cooling off period to reconsider. This 10-day period is based on calendar days and not business days. The cooling off period is provided so that you, the buyer, can review the agreement with your lawyer and realtor and if there’s anything there that doesn’t make sense or seems off, you have time to correspond with the builder or change your mind entirely. Your deposit will be returned if you back out of the contract before the 10 day period is up.
The Waiting Period
Pre-construction condos come with a waiting period. The builder will give you an expected date for the completion of your unit and the building itself, however in some cases there may be some delays. Overall condos are completed on time, but special circumstances could cause some minor setbacks to your projected move in date. Your agreement will outline any expected delays and what the penalties are if those delays are extended beyond the contract.
Prepare For Changes
When it comes to pre-construction condo buildings, the changes that may occur are only supposed to reflect the building itself and not the unit your purchased. You are protected from what are considered material changes and your agreement will outline what those changes are. Usually the builder will only make minor changes such as moving the gym or the pool to a different floor or tweak the building’s layout slightly.
In The Interim
When your unit is built and you are ready to move in, there is what is known as the period of interim occupancy. This does mean that you can take possession of your unit and move in, however, during the interim period you actually don’t own the condo yet. This is because the land transfer to the building hasn’t occurred yet. In the interim you pay the builder an amount that is equal to what your mortgage payment, condo fees and taxes would be until the condo is officially registered. This is when your mortgage will come into effect and the builder transfers the unit over to you.
Additional Fees And HST
When buying a pre-construction or resale condo, you’ll be subject to condo fees. In pre-construction buildings, the fees are lower because they are set well in advance of the building being constructed. In a new building you can expect your fees to increase 10-20% in the first few years to adjust to the costs of what management needs to run the building. Furthermore, you’ll be asked to contribute to the condo reserve fund, which is an amount equal to two months of condo fees and is paid at the time of closing. This is akin to putting down a security deposit when you rent an apartment. There are also builder closing costs for pre-construction condos that need to be paid when the unit is officially registered and your condo has closed. These costs include utility connections and development fees and are usually about 1-3% of the amount of your original purchase price. Finally, you need to pay HST on your new condo. If you’ve bought the condo to live in, as the end-user, HST is included in your purchase price. However, if you bought the condo as an investment property, you will have to pay the HST upon final closing but you can claim back a portion of it by filing a HST rental rebate.
Buying a pre-construction condo may seem like a lot to take in at first, but if you have the right real estate agent and mortgage broker in your corner, you’ll be well prepared for your new investment.