Purchasing a condominium unit during its pre-construction phase has long been a popular option in Toronto’s booming housing market, where in some cases it can take just 6 months for an entire building to sell out depending on its location.
There are definitely some benefits associated with a pre-construction purchase, along with some negatives that we’ll examine in this post.
Largely, however, pre-construction units offer up a discounted price for a new property, provided you can wait through the construction phases and potential delays.
Pro – Lots of time for financial planning
One of the most obvious pros, if you have the patience, is the down payment schedule. You'll get an extended length of time to pay your total deposit in smaller installments, stretched over the construction period.
Over the course of the construction, you’ll be asked for your down payment in 5% installments, paying the last 5% right before you get your keys. This elongated payment schedule – between three to four years typically – can make your financial planning easier, giving you enough notice to manage your savings accordingly.
Plus, your mortgage won’t start until your get the title to your unit. The mortgage popping up at the end of construction means it's important to stay on top of your mortgage pre-approval process.
Pro – Customize your unit
Another obvious pro of getting into the building before resale is your choice over the finishing, location and layout of your unit, both within the building and the unit itself.
Certain developers work with their early buyers to make sure they get what they want out of the unit, allowing them to customize their interiors to their liking by choosing backsplashes, countertops, appliances, wall colours, etc.
Come resale time, a new buyer will have to side with your design decisions or choose to make their own changes, which is something you should consider if you’re thinking about its desirability on the open market.
Pro – Profitability
Because you’re purchasing the unit during pre-construction and trusting your developer with your hard-earned money, they’re going to give you a discount in exchange. They may also throw in some early-bird incentives to make your purchase well worth the wait.
Any discount you receive will play positively into your unit’s appreciation potential. Though not always a sure bet, the value of your unit will rise as each construction phase completes. This is why there are Assignment sales that occur at profit before the occupancy date, and also why quick resales occur once the building opens for residency.
The more you can negotiate into your Purchase Agreement during pre-construction, such as discounts on the unit, parking spaces, storage lockers, etc., the more you can stand to profit whenever you decide to resell at a new market price.
Con – Delay potential
Since you’re buying your condo unit unseen, there may not be shovels in the ground for a while. Further, there could be a wealth of other issues associated with the project, from creditors backing out, material shipment delays, injuries on the work site, inspection delays or even weather interruptions.
Con – Staying somewhere while the project completes
During the interim between signing down your interest in the unit and the time when you can actually move in, there will be a length of time where you’ll have to figure out your temporary housing situation.
This doesn’t have to be a con if you have an affordable rental or are able to move in with family members. The more money you can save during the construction phases, the more you can put towards your down payment or mortgage, helping you pay down your property debt faster.
Con – Unpredictable fees
Once you move into your property, you’ll have to pay your share of maintenance fees with the all the other owners in your building. These fees pay for staffing, cleaning and ongoing maintenance of the building property and its amenities.
Because the building is new, and perhaps not everything is installed, your maintenance fees could be affordable one month, then skyrocket the next month as they finish up installation of the pool, sauna or rooftop deck.
Make sure your monthly budget can cover these impromptu spikes in condo fees by having some extra padding with an emergency fund. This emergency fund is something you can save up for during the construction phases.
The take away
As you can see, there’s a relatively even balance of positives and negatives associated with a pre-construction investment. If you need an immediate residence, then the time it takes for the building to rise won’t work for you.
If you’re looking to make a decent 5-year housing plan and can accommodate yourself during construction, then a pre-construction unit can offer you: time to get ahead of your savings, time to customize your unit and enough time over the length of construction to see some appreciation. If you’ve picked the right unit, of course.