If you’re thinking about buying a new construction condo and find yourself wanting a little more information on the process, I am going to walk through below what I think are some of the major considerations as you contemplate this important purchase.
1. Consider the costs involved. In a re-sale condo, the costs are basically straightforward: they consist of the agreed upon purchase price, plus applicable land transfer tax (the amount will vary based on the cost of the property and whether or not you are a first time home buyer), legal fees and disbursements. In a new construction condo however, there may be additional costs owing to the developer at closing, including development and education charges and the installation of water, hydro, and gas metres. These additional costs can cost several thousands of dollars in addition to the cost of your property and vary project to project. Also, bear in mind that parking, lockers and any upgrades you choose have separate prices from the unit itself. Therefore, it is important to look at all of the costs involved and not simply the base price of the unit.
2. Another important consideration is the deposits that must be made. Some projects require as much as a 25% down payment, and considering the high price tags of new construction currently, this can amount to a significant amount of money. The deposit structures vary project to project and some developers may even be willing to adjust the terms for your particular contract. For example, you may be asked to put down a total of 15% spread over 120 days after buying the property, and then the remaining 10% on closing. Affordability is therefore something that must be thought out carefully and having all of the funds necessary to close will take planning as you wait for your unit to be constructed.
3. The completion date of a new construction condo is often unknown to the purchaser. The developer will provide a proposed date when you purchase your unit, however, with notice provided, the date can be modified and construction extended. It is therefore important to bear this in mind if you are considering a significant change to your living situation near the time of completion. People occupying units on the lower floors will also usually be moved into the building before the top floors are completed, and at this stage, you will be required to pay what’s called “phantom rent.” The amount should approximate your mortgage interest, property taxes, and condo fees. You must continue to pay this until the condominium is actually registered, at which point you will begin paying your actual mortgage (along with property taxes and condo fees). This time period can range between 3 and 6 months or even longer in some cases. Keep in mind, however, that it’s exciting to get into your home and you would be paying for your home no matter where you live.
4. One of the most exciting parts of buying a new construction condo is the ability to select your finishes. These include things like the flooring, countertop and backsplashes, among other things. The builder will have a set of standard finishes where you are able to choose the colours that you want, and they will also have upgraded options available that you can choose to pay extra for. In addition, you may be able to work with the developer and ask for additional work to be done in your unit (for example, creating additional areas for light fixtures). In some cases you can also re-design the actual structure of your unit, which may come at a certain cost (for example, moving a wall). Even though extra funds may be required, it is exciting to be able to completely custom design the unit exactly the way that you want it. New construction condos also typically have much nicer standard finishes than re-sale condos and the overall look will carry through to the lobby and amenity areas, creating the atmosphere you are looking to buy into.
5. Condo fees may often be lower in a new construction project than a re-sale property as repairs and upgrades to the building would not be expected for some time. As well, some new buildings are even attempting to become more “green” or even become LEED certified, which can also reduce occupancy costs over time.
6. The re-sale value on a new construction property, depending on the unit style, floor, and view, may often be higher than a re-sale property as there is a strong demand for fresh, new, and contemporary styles which are not always seen on the re-sale market. Today, developers are marketing projects as complete “lifestyles,” often accompanied by some pretty amazing amenities. This can go a long way in the re-sale value of your property where a strong market for such a lifestyle exists.
7. In a new construction condo, you are buying based on a floor plan. It is somewhat difficult to envision how your unit will really look and feel until you are able to step into the real thing. Developers also have the ability to modify the plans or specifications of your unit as long as it is not a material change. It is therefore always important to research the developer’s background and past history of projects. Even with a successful history, there is always a chance that something could turn out slightly different than you expected.
8. Lastly, when you purchase a new construction condo, there is a 10-day “cooling off” period that allows you to back out of the purchase within 10 days if you so choose. You will need this time period to get approved for financing and have a lawyer review your purchase agreement.
I have purchased and sold a re-sale condo in downtown Toronto and am currently awaiting the completion of a new construction condo in mid-town Toronto that I purchased just over a year ago. While I will have to wait until I see the end result to make a final call on whether or not the experience was worthwhile, I have to say that I am definitely more excited for the new construction project and being able to one day make it my own.
Top photo: Ice Condos, Toronto