Should you buy a pre-construction condo or one that’s already built?
Click here for the first blog: about New vs Resale Condos (part 1).
Money Matters
- Deposits – New construction condos in Toronto generally require 15-20% deposits, while most Resale condos can be purchased with as little as 5% down. Depending on your financial situation, this may be a deal breaker. With Resale condos, you generally have 24 hours to provide your deposit to the Seller’s brokerage – in new construction projects, you will likely provide a series of installment payments to the builder.
- Price – Note to anyone who hasn’t been following the condo market in recent years: currently in the City of Toronto, it’s more expensive to buy a Pre-construction condo than a Resale condo. This wasn’t always the case. In setting their price, builders today attempt to predict where the market will be in X years—i.e. when the project is complete. Resale condo prices are set to reflect the realities of the real estate market in Toronto today.
- Taxes – New construction is subject to HST – which adds 13% to the cost of the condo. With Resale condos, you’ll only pay HST on your legal and real estate fees.
- Condo Fees – Condo fees in New buildings tend to be significantly lower than in Resale condominiums. This is partly due to the fact that the repairs and renovations required in the early years will be low, and partly due to the fact that the builder estimates them low in the beginning to be attractive during the sales phase. If you buy Pre-construction, expect the condo fees to increase—sometimes by up to 20% in the first few years as adjustments are made to reflect actual costs.
- Occupancy fees – When your New condo is ready to move in, you won’t actually own it right away – this is called the occupancy period. The occupancy period can last anywhere from 4-12 months and is the time between when you move in and when the condo corporation officially and legally forms. So while you may be living in your new condo, you don’t own it yet—you’ll essentially be paying the builder rent. When the condominium finally registers, you’ll get your mortgage and title to the property. Till then, all you have is a contract with the builder.
- Interest rates – One advantage of buying Resale is that you can more accurately estimate your monthly carrying costs using current interest rates. If interest rates rise between when you make the offer on a New condo and when you get possession (which they almost certainly will), then your costs may be significantly higher then you anticipated. Note that builders often have a relationship with a lender who may agree to guarantee a rate longer than usual.
- Closing costs – New construction condos come with a whole slew of unique closing costs that the builder passes on to the new owners. A well drafted Agreement of Purchase and Sale can help cap the amount of money you owe on closing. With both Resale and New condos, you’ll have to pay legal fees and land transfer taxes.
Maintenance, Renos and Repairs
- Maintenance and Repairs – New condos are covered by the New Home Warranty Program which protects owners from initial problems with the unit and building. In older condos, if major repairs to the building are required and there isn’t enough money in the condominium’s reserve fund, you may need to pay a one-time special assessment to cover the repairs. With Resale condos, if problems go wrong in your unit (for example, the washing machine breaks down the first week you own the condo), fixing or replacing it is on your dime.
- Noise – If you’re one of the first people to move into a New condo, be prepared for noise, mess and disruptions as the rest of the building and amenities are completed. But on the flip side, your new condo has probably been built with better soundproofing then 20 years ago!
