Pre-construction or resale?

New vs Re-sale condo

This question comes up on a regular basis and I found it important to address. The answer is not that simple unless you as the buyer know your criteria, motivation and  risk tolerance. There are many things to first consider before deciding.

If you are the type of person that needs to see it, touch it, smell it… Then a re-sale condo is likely for you, but there are so many other things to think about first.

If you are not sure yet whether to buy re-sale or new, I will outline some of the facts you need to know which will hopefully guide you to your decision.

When you buy re-sale, you can look at it several times to see if it works for you, have an idea of who your neighbors are, see the status certificate; see how the management is run; see how the building is maintained, see the forecast for the maintenance fees, see what your view is and will be and usually the lighting and window coverings have been upgraded already.

Since a pre-construction condo doesn’t exist presently, you are dealing with the intangible. The Idea, and Concept are translated on paper in the form of a contract. The drawings, look, style, specifications for just about everything are in the contract as is the  builders and your obligations and responsibilities.

In the case of a re-sale condo, the agreement to purchase is straightforward and you know when your move in date is. It’s final, un like a new construction condo where you sign a one sided contract and the developer can change the closing date on you… many times. This can make planning your move an absolute nightmare, especially if you have a property to sell. Added to this is the uncertainty of what the mortgage rates will be once your condo finally closes.

Here is another real doozie; If the mortgage rates go up while you are waiting for that final closing date, you may no longer financially qualify for your condo and there could be some serious repercussions should you not be able to close with the builder. After all, it was a legal document you signed when you bought pre-construction. In a re-sale condo, you can finance it and you know what your closing costs are.

Here are other things to consider. In the case of new construction, you will need to come up with up to 20% of the purchase price within the first 6 months of your purchase plus closing costs by the time it’s registered. When you buy a re-sale condo, you are only responsible for the deposit which amounts to approximately 5% of the purchase price or less, depending on the purchase price of the unit. When you buy new, you will also be responsible for paying a 13% HST tax on the purchase price of your unit upon closing.

In addition to this, it used to be that the government imposed development levies, such as school, land and park levies, were included in the purchase price. This is definitely not the case any longer. Most developers now pass along those levies to the buyer as part of the closing costs. It is not unusual for the buyer to have the unpleasant surprise when they FINALLY close on their condo, to have a huge additional builders fee covering all of the levies. This fee could amount to well over $20,000 and if you aren’t prepared for it, this could be a real problem!

If you are considering buying this new construction condo as an investment, all of these things must be considered before crunching your numbers to see if the market rental can absorb all of the carrying costs involved in your purchase.

My experience has shown me that the maintenance fee advertised by the developer when you buy, will typically double within the first 2-3 years of building registration. Be ready for this and use this in your calculations.

You are also responsible for the builders carrying costs from the Interim occupancy, which is the from the day you move into your unit until the building gets registered which could be 6 months or longer from the time you occupy your unit.

This means that you will not be paying towards your own mortgage, but paying towards the builder’s mortgage until which time that the building registers. So…the contract becomes tangible when the building finally registers with the city.

Here’s another thought: what changes will happen to you in your personal life and the real estate market between now and the time it’s finally closed?  We can only speculate.

The downside for a re-sale condos is that it has likely already been lived in and isn’t new and pristine. There typically isn’t a warranty unless the building was recently built. The flip side of that is that, if the condo needs some work, you can buy it for less and add your own personal updates to further increase the value for when you eventually sell it down the road.

Also consider that in the case of buying new,  you will have to pay for window coverings and possibly have to upgrade some of the lighting fixtures. This is typically already done for you in the case of a re-sale condo.

As you can see, there are many things to consider before making the decision to purchase a new condo, especially now with the HST tax thrown in. Make sure you know the numbers and final costs prior to making this very important decision.

If you would like to discuss this topic further please feel free to contact me directly at (416) 879-7323 or by e-mail: mx.mr@sympatico.ca

Have an awesome day!

Michelle Read

Personal Real Estate Consultant…For Life

 

 

 

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