A Toronto Pre-construction Condo can be a fabulous asset for your investment portfolio, but what should you know, before falling in love with one of these shiny new towers?
Speed! Once you find a building you love get prepared, start immediately getting your finances in order, be sure of the price of your first three choices of unit layout so you can start the pre-approval process. Review the developers’s requirement for an initial deposit (usually required on signing) this amount varies per project and builder but is usually between 5-15 thousand, once you know what that amount is get a bank draft for that, so it is ready to go. Pre-construction units in Toronto go fast so getting these initial ducks in a row especially the bank draft for the initial deposit bank draft is key!
The Deposit schedule –After you give the initial deposit in bank draft on signing, be sure to review the deposit schedule for the next usually 20-25% of the full unit price. For example, 5% at 30 days, 5% at 90 days, 5% 180 days, it varies on the developer policy and the project itself, so be sure you are aware exactly how it is structured so the money is in your account available, as these deposits are usually taken on signing in the form of post dated checks.
The 10-day Cooling Off Period – In Ontario, every purchaser of a new condo has 10 days to back out of their condominium purchase (10 days from signing, not 10 business days). During this time, you should arrange financing for your unit 100% financing coverage has become the norm for most builders (100% of the full amount minus the percentage to be paid during the deposit schedule). Next review the entire contract with a real estate lawyer if there is anything explained to you that you are not comfortable with and or you cannot arrange financing you may back out of the purchase with your initial deposit being returned to you with no penalties or fees within these 10 days.
The waiting Game. Although the expected date of completion appears in black and white in the contract, rarely (if ever) are buildings ever completed on this expected date of completion. Developers per your contract, can delay this date for very long periods of time, from 6 months to sometimes past 2 years. When you are looking over your agreement with your lawyer make sure to note the limit (in months or years) of these delays and any penalties again if any the developer may incur for being late.
The Change Factor. Developers have a fair amount of leeway to make changes to the units and the building itself even after all the units have been sold out. They can add or subtract amenities and features, whether that be taking away a certain amenity all together or changing its size and location. They can add or subtract the amount of storeys on the building, and can change finishing materials and even what the building will end up looking like, again we advise you review these possibilities with your lawyer and be prepared for at least some change.
The Interim Occupancy Period When the condo is built and ready to be moved into, there is a period of ‘interim occupancy’, where the Buyer can take possession and move into your unit if you are ready to do so. During this time, you do not actually own the unit but reserve the right to occupy it, and pay the builder an amount roughly equal to what their mortgage payment + condo fees + taxes will equal, note this is not your mortgage which will not kick in until the transfer of land and ownership to you has occurred.
Condo Fees at the time of your purchase are only estimated, because no one can actually know what it costs to run that particular building in 3-4 years time. So, expect that these estimated costs may increase by 10-20% during the first two years to adjust for this uncertainty.
Registration of the Condo Once a building has passed all the city inspections and gone through all the processes to become a legal entity, condominiums are officially registered. Essentially this is your closing, when ownership of your unit is transferred to you, and your mortgage kicks in. This process can be fast 1-2 months, or it can be incredibly slow a year or more, but usually it takes 3-8 months after the interim occupancy period (see above).
Builder Closing Costs When the unit is officially registered, and you close on the purchase, you’ll be responsible for certain closing costs. These Developer adjustments apply to all newly constructed condominiums and include development and education costs, HST on appliances and utility connections fees. These Developer adjustments upon closing can amount to around 1-3% of the original purchase price, when reviewing the contract with your lawyer ask if these costs are capped at a certain amount, but always be prepared to incur some extra costs.
The Condo Reserve Fund When you buy pre-construction, you’ll need to contribute 2 months condo fees to the condo’s reserve fund. This usually happens at the time of closing, to add extra assurance that any deficiency in common areas will be covered.
New condo purchases are subject to HST, however if you are the end user or planning to live in the unit upon its completion, and not an investor planning on renting the unit you are likely entitled to a rebate for this amount from the builder. Investors in some cases may be allowed the same rebate, but we suggest you consult your lawyer about the HST rebate as the rules and circumstances can get confusing.
*We advise that you thoroughly review your contract with a specialized real estate lawyer, this is just an insight into some of the policies and requirements you may run into after purchase and not legal advices.