What You Need To Know About Buying a Pre-Construction Condo
It's rare that resale condominiums will be subject to HST, however new condos are subject to HST. That being said, If you or your immediate family will be living in the unit yourself, you'll likely qualify for an HST rebate. If you're an investor and buying the condo to rent out, you may have to pay HST upon closing. As always, seek legal advice to ascertain whether you qualify for the HST rebate before you buy a condo.
10-day Cooling Off Period
When you buy a new condo in Ontario, there is a 10-day cooling off period, so you have a short period to reconsider. This 10 day period is the time a Buyer should spend getting assurances of financing and having their lawyer review the agreement to avoid any surprises later on. If you do change your mind (for any reason) during the 10-day cooling off period, you can back out of the contract and your deposit will be returned without deduction.
Speaking of the deposit, unlike the deposit on a resale condo, when you buy from the builder, you will generally require significantly higher deposits - often as high as 15 or 20%. Usually a set amount $3,000, $5,000, etc. is given upon signing the agreement, and the balance to 5% is due within 10 or 15 days. Every builder has there own schedule of how the remainder of the deposit is paid - but a typical schedule could be: an additional 5% at 30 days, 5% at 90 days, 5% 180 days, etc.
So when will it be ready?
Condominiums rarely condos completed on time. Builders have the right to delay for all sorts of reasons and for a surprisingly long time, despite the stated expected completion date given when you buy. The actual delays and builder penalties (if any) are outlined in the agreement of purchase and sale, but you would be wise to prepare for several months, to more than a year for delays.
Builders Have the Right to Change.
Builders have the right to change many things when building a condominium. From finishes, to layout, to amenities and even to the size of a unit. I have seen agreements that allow up to 10% variation in size! That means your 800 square foot condo could end up being 720 square feet and there is nothing you can do. Read the sales agreement and be prepared to accept changes you agreed to.
Maintenance fees in new buildings are usually set arbitrarily low. That's partly because they are estimated years in advance of the condo being built, and partly because they don't know the actual costs of running the building. It is also a sales tactic, as builders may set the fees at the minimum required by law, knowing they will not be enough and need to be raised. So, be prepared for condo fees to increase substantially during the first 2 years, usually 10-20%.
When the condo is built and ready to be moved into, there is a period of ‘interim occupancy’, where the Buyer can, and usually is requred to, take possession (whether you move into the unit or not). During the period of interim occupancy, you not yet have title to the condo; you simply pay the builder an amount roughly equal to what their mortgage payment + condo fees + taxes will equal. No transfer of land has yet occurred, and no mortgage has yet been given, because the condo corporation, which you will own shares in, has not been formed yet.
Registration of the Condo Corporation
Once a building has passed all the city inspections and gone through all the processes to become a legal entity, condominiums are officially registered. During this registration period, condo ownership is transferred to the Buyers, mortgages come into effect and Buyers officially become owners (a.k.a. the closing). This registration period can take anywhere from 3 months to 2 years (though usually it happens 4-8 months after people begin to move in for the interim occupancy period).
When the unit is officially registered and you close on the purchase, you’ll be responsible for closing costs that are unique to new construction. These ‘builder adjustments’ apply to all new construction projects and include development and education costs, HST on appliances, utility connections fees and fees. These builder closing costs can easily amount to 1-3% of the original purchase price (and there’s talk of the development fees doubling in Toronto in the near future). If you’re looking at taking over someone else’s contract via an assignment, look to see if the original purchaser capped the amount of these costs when they originally negotiated the unit. Otherwise, make sure you have lots of money put aside for closing 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 (the emergency funds). This usually happens at the time of closing.
As you can see, there is much more to buying a pre-construction condo than buying resale. Kerp in mind, the person at the sales centre works for the builder and their job is to get the best prices and conditions for the builder, not for you. That's why it is a good idea to have myself representing you (at no cost to you!)If you're considering buying a condo pre-construction, make sure to read: