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Is Buying Pre Construction Condos a Good Investment?

Posted by greatpassion25 on January 12, 2024

 

In the ever-evolving realm of Canada real estate market, the allure of pre construction condos beckons as a potential gateway to lucrative returns. However, as with any investment, the decision to dive into the world of buying a condo still demands careful consideration.

What is Pre Construction Condos?

Pre construction condos represent a unique avenue in the Canada real estate market, offering homebuyers the chance to invest in a property that is yet to be built. At its core, a pre construction condo involves buying a condo based on the developer’s plans and specifications, often at an early stage in the development process. 

Typically, the whole process involves six main stages:

  • Pre-Registration Phase: Potential buyers express interest and secure a place on the project’s waiting list.
  • Pre-Sales Stage: Buyers have the opportunity to choose specific units and negotiate prices.
  • Contract Phase: A purchase agreement is signed, and a deposit is submitted.
  • Periodic Payments During Construction: Buyers make periodic payments as the construction of the condo progresses.
  • Occupancy Phase: The building becomes habitable, allowing buyers to move in, even though final touches may still be underway.
  • Final Closing: The official transfer of ownership from the developer to the buyer occurs, completing the process.

Key Factors to Consider for Buying a Pre Construction Condo

Prior to committing to buying pre construction condos, it is crucial to contemplate various essential factors. Engaging in thorough due diligence serves as a vital step in ensuring an informed decision and mitigating potential issues down the road. Join us as we navigate through the following steps to effectively buy a condo:

  • Research the Developer: Delve into the developer’s reputation, track record, and financial stability. Scrutinize reviews, news articles, and information on past projects to gauge their credibility in the industry.
  • Check the Location: Investigate the neighborhood, focusing on amenities like grocery stores, restaurants, public transportation, hospitals, schools, parks, shopping malls, and highways.
  • Review Floor Plans and Finishes: Analyze the details of unit floor plans, including size, layout, and the quality of finishes.
  • Building Features and Amenities: Examine the features and amenities that the pre construction condos will offer, such as security systems, parking, storage, fitness facilities, and communal spaces.
  • Review the Contract: Thoroughly read and comprehend all terms and conditions in the contract. Consider seeking assistance from a lawyer or real estate agent for a comprehensive review.
  • Investigate the Timeline: Inquire about the estimated completion date, potential delays, and the developer’s policies for managing delays or cancellations.
  • Market Value: Compare the pre construction condos price with similar properties in the area, factoring in location, size, and amenities.
  • Deposit Structure: Understand the deposit structure and payment timeline, spanning over months or even years, when evaluating the pre built condos overall cost.
  • Check for Warranties: Ensure that the pre construction condos come with a warranty from the builder, enrolled with Tarion, covering deposit protection and delays in closing or occupancy.
  • Right to Lease during Occupancy: If buying a condo for investment, confirm the developer’s policy regarding the right to lease during the interim occupancy period.
  • Right to Assignment Sale: If assignment sales are permitted, carefully examine the contract terms to ensure the developer explicitly allows them.
  • Consult with a Real Estate Professional: Consider seeking guidance from an experienced real estate agent with expertise in pre-construction condos for valuable insights and assistance in navigating the process.

Pros & Cons of Pre Construction Condos Investment

Now that we’ve covered the fundamentals, it’s time to unravel the advantages and disadvantages of buying pre construction condos.  Whether you’re a newcomer to the Canada real estate market or aiming to diversify your investment portfolio, let’s explore the ins and outs of condo ownership together.

The Pros 

  • Extended Deposit Structure: When acquiring pre construction condos, the deposits, typically ranging from 15% to 20%, are strategically spread over 18 to 24 months. This extended structure not only aids investors and end-users in saving up but also provides flexibility by allowing the use of a line of credit to further stagger the payments. During the 3 to 5-year construction period, there is no immediate mortgage obligation, offering a unique advantage in managing financial commitments. This extended timeframe allows buyers, both first-timers and investors, to view it as a forced saving or investment strategy, easing the financial burden.
  • Lower Purchase Price: A significant perk of investing in pre construction condos is securing a lower purchase price. Developers often entice early buyers with incentives, including discounted prices and special payment plans. By entering the market early, investors can lock in a lower price compared to the future market value. As the property appreciates during the construction period, buyers stand to gain a substantial return on their investment.
  • Potential for High Appreciation: Investing in pre construction condos mirrors stock market futures, allowing buyers to acquire at current prices with the anticipation of future value growth. Historical trends indicate an average annual property value increase of 6%. Seasoned real estate professionals can guide buyers toward areas with strong potential for appreciation, such as gentrifying neighborhoods or regions with new infrastructure projects like Toronto’s LRT lines.
  • No Bidding Wars: Unlike the competitive resale market, purchasing pre construction condos provides a 10-day cooling-off period. This timeframe allows buyers to thoroughly evaluate the investment with their attorney, realtor, lender, and financial adviser. The absence of bidding wars streamlines the evaluation process, offering a more efficient and strategic approach to assessing this investment opportunity.
  • Hands-Off Investment: Owning real estate in Canada can be both exciting and demanding. A significant advantage of pre construction condos ownership lies in the initial 3 to 5 years, where the construction period is entirely passive. Following completion, investors can enlist a qualified realtor to handle property rental and management, minimizing hands-on involvement. Additionally, the Tarion warranty covers any building maintenance issues in the first few years, providing an extra layer of protection unique to new construction homes in Ontario.

The Cons 

  • Potential Construction Delays: Given the intricate nature of pre construction condos, the likelihood of construction delays is higher. Builders often provide a Tentative Occupancy Date, subject to multiple extensions with advance notice for each delay. The purchase agreement’s addendum details conditions for extending occupancy dates, termination due to delays, and potential compensation under warranty for delays.
  • Risk of Project Cancellations: Pre sale condo projects may face cancellation risks due to factors like insufficient sales, funding issues, or failure to obtain development approvals. The purchase agreement’s addendum outlines conditions for early termination, potentially resulting in project cancellation. In such cases, it will waste the time and effort invested by the buyer.
  • Living Amidst Ongoing Construction: Being among the first to occupy a pre built homes means living amidst ongoing construction as the rest of the building is incomplete. This situation entails dealing with issues like noise, debris, and disruptions. Additionally, anticipated amenities such as a pool or fitness room may not be ready for use immediately.

Conclusion

In conclusion, the decision to invest in a pre-construction condo comes with its set of pros and cons. A careful consideration of these factors is essential to determine if this type of purchase aligns with your preferences and goals. Should you require assistance with real estate transactions, feel free to schedule a complimentary consultation with our team for expert guidance in buying or selling property. Contact us now.

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