Whether you are purchasing a condo to live in (or invest in), your decision will ultimately come down to whether or not you should purchase a pre-construction condo or a resale condo. There are many factors that will influence your decision and will make the most sense to you depending on your motivation or financial standing. Let’s take a look at the most significant factors below.
Pre-construction
PRICING
The number one benefit of purchasing a pre-construction condo has always been the ability to purchase a condo for a price lower than existing resale condos. By being able to buy a unit in a project before it’s built allows you to potentially realize a gain in the future as the condo appreciates in value during the years that it is being built.
The reality is, in Toronto’s pre-construction condo market, prices are almost equivalent or more expensive than some existing resale properties. Higher labour and material costs, as well as higher land costs, are the primary reasons for this price increase. In the past, finding pre-construction condos priced below their resale counterparts was possible, but as of late, they are becoming increasingly harder to find.
The only benefit to buyers when purchasing pre-construction condos is if they are able to access pre-construction pricing. To access these lowest possible prices you have to either be a friend or family member of the developer or you have to work with an agent who has “Platinum” access or at the very least can get “VIP” pricing. Being able to purchase a condo before the general public can often mean saving thousands of dollars.
The savings are a result of the developer’s motivation to sell. Developers in Toronto are typically required to pre-sell between 65% to 75% of their condo before they are able to secure construction financing from a bank. When developers launch a project, being able to access it at the very beginning is of utmost importance because the developer will be motivated to offer incentives to buyers in order to reach the 65-75% in sales that they need.
There are typically 5 condo launches in the pre-construction sales process and as more and more units are sold, the price of condo units increase and fewer incentives are offered.
Here’s how a typical Condo Launch would look like:
- The developers’ friends & family have first access to units.
- Platinum Launch – “Platinum Agents” are given access to units.
- VIP Launch – A wider pool of VIP agents are given access to the project. This would be a pool of up to 500 agents.
- Any Agent – All 50,000+ agents on the real estate board are invited to sell
- Finally, the public opening – This is an invitation to those who registered for the project on the developer’s website or contacted the developer directly. Anyone and everyone are able to purchase a unit.
Closing Costs
If you purchase a pre-construction condo, expect to pay these unique closing costs:
HST
If you or a family member is expecting to move into the pre-construction property as your permanent residence, then the builder will pay this tax, but if you intend to never occupy it and use it strictly as an investment property then you will be responsible for paying the 13 percent HST tax.
Development fees
Development fees are the various levies that are charged to condo developers by municipal governments. Every project has its own set of unique development fees to include things like roads, transit, water and sewer infrastructure, park levies, etc. These fees are passed on to buyers in the form of development fees. It is important for you to negotiate a “cap” for these fees in your contract.
Occupancy fees
The interim occupancy period occurs when your unit in a pre-construction condo is ready to move into before the building is completely finished. Buyers will have to be prepared to pay occupancy fees during the period of time between when you take possession of your unit vs. the date you actually close on the property and own it.
Customization
If you plan to make your condo home (as opposed to renting it out as an investment), the ability to customize it may be a key factor in your decision. Pre-construction offers you the opportunity to personalize your new space—from flooring to countertops and everything in between.
Timeline
If you’re looking to move into a new home immediately, you should only consider resale condos. On the flip side, if you don’t mind waiting a while for the unit of your dreams—or a lucrative investment—pre-construction might be right for you. Timelines vary. But the completion of a pre-con project can take years, and delays may pop up along the way. If you’re thinking about the benefits of pre-construction vs. resale units, be sure to factor in your future plans.
Down Payments
In the pre-construction vs. resale debate, down payments can be a major deciding factor. pre-construction condos come with more flexible deposit structures, whereby purchasers make payments over time leading up to possession of their units. This more flexible structure can provide buyers with more time to save up for their down payments—not to mention their closing costs.
Who Should Buy Pre-Construction Condos?
Below are factors that indicate if you are a good candidate for a pre-construction condo investment.
- You have a 15% – 20% down payment available or you already have equity in a current property
- You can save enough over three to four years to qualify for a mortgage while the building is being built
Who Should Buy RESALE Condos?
If you meet these three major qualifications you’re likely a good candidate for resale investing.
- You have a 20%+ down payment ready to go.
- You can qualify for a mortgage today.
- You don’t mind being a landlord for an extended period of time.
Condo Customization
Changing the finishes in a resale condo can be a hassle, and management may not even allow you to make the updates you want.
Your Timeline
If you’re looking to move into a new home immediately, you should only consider resale condos.
The Bottom Line
When it comes to pre-construction vs. resale units, it all comes down to your preferences and priorities. Do you want to customize your condo from the ground up, or would you rather not bother with design decisions? Do you want to experience the financial benefits of locking in your pricing, or are you looking for a place you can move into next month? If you’re not sure which option is right for you, call me and we can go over your options!
