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9 Useful Things To Know About Pre Construction Condo Investment

Are you considering pre construction condo investment? This can be a smart move whether you plan to live in the condo yourself or use it as an investment property. Many investors are drawn to the pre-construction market, and it’s not hard to see why. 

Being part of the development process from an early stage gives you the exciting opportunity to choose your developer and location. But before you take the plunge, you should know some essential things to ensure your condo investment is sound. Let’s dive in and explore the top seven factors you need to consider.

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Invest In A Builder Before You Invest In A Building

Here’s a golden rule that I always share with my clients: prioritize the builder’s reputation regarding pre-construction condo investments. Opt for a condo building developed by a reputable builder with a solid track record of executing their plans on time and without unnecessary delays. 

Why is this important? Well, when the time comes to resell your condo, a builder’s post-closing history plays a crucial role in determining its resale value. So, do your research and choose a builder you can trust.

The 10-Day “Cooling-Off” Period

One advantage of buying a new condominium in Ontario is the 10-day cooling-off period mandated by law. Unlike the resale market, this period gives you a unique edge in the pre-construction condo market.

When you purchase a condo from a developer, you have ten days from the date of signing to decide whether you want to proceed with the purchase. During this time, the builder cannot sell the unit to someone else or change your price. This lets you secure the purchase price and any incentives the builder offers.

So, what should you do during these ten days? First, I highly recommend having a lawyer review your Purchase and Sale Agreement with the builder. This will ensure that you clearly understand the closing costs and the fine print in the legal documentation.

Secondly, take the chance to explore other options. Visit other pre-construction condo projects comparable to the one you’re considering. By comparing prices and incentives, you can ensure you’re making a wise investment in the Toronto real estate market.

Did you know?
The P&S agreement can only include the conditions agreed upon in the Offer, but it may also include many of the difficulties and milestones that will arise during the building and closing process. 

Interim Occupancy vs. Closing: What’s The Difference?

Regarding condominiums, you’ll encounter two closing dates: interim occupancy and final closing. Let’s break down what each of these means.

Interim Occupancy

Interim occupancy is when you get the keys to your unit and can move in, but technically, you don’t yet own the condo. During the interim occupancy period, owners move in staggered phases, usually a few floors at a time, to avoid everyone moving in on the same day. 

It’s important to note that, at this point, the building isn’t registered yet. However, if you’ve chosen a reputable builder l, you can expect a relatively quick registration process, typically within six months after the interim occupancy period.

Interim Occupancy Fees 

During the interim occupancy period, you must pay temporary occupancy fees to the builder. Think of this as a form of monthly condo maintenance fee. It covers the interest payment on 80% of the purchase price you borrowed (assuming a 20% down payment). 

The builder determines the interest payment based on the Bank of Canada key rate, and you’ll make the down payment directly to the builder. 

It’s worth noting that your monthly carrying costs during interim occupancy will be lower compared to after the final closing. In addition to the interest payment, you’ll also pay maintenance fees for the general upkeep of the building and any shared facilities.

Final Closing

This is the moment when the builder registers the Condo Corporation with the City. At this stage, your bank pays the builder the remaining 80% balance, your mortgage starts, and you officially receive the title for your unit. 

It’s during the final closing that any adjustments and closing costs will be calculated and paid. These costs may include property taxes, legal fees, land transfer tax, and other expenses outlined in your Purchase and Sale Agreement.

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Closing Costs: Development Fees & Levies on Your Investment

Now, let’s talk about closing costs, which can sometimes cause concern among buyers. You may have heard horror stories about outrageously inflated closing costs in pre-construction condos, but let me assure you that with proper due diligence, you can avoid these pitfalls.

Development fees and levies are determined when a property is being developed. As a building goes up, the population density in the neighbourhood increases. 

Consequently, the city charges the builder a per-unit fee to fund the necessary local infrastructure to support the new residents. This infrastructure can include new streets, parks, schools, and future transit solutions.

To avoid surprises, it’s crucial to have a good lawyer review your agreement with the builder within the ten-day cooling-off period. Additionally, it’s wise to work with a knowledgeable pre-construction realtor who can guide you through the process and ensure your interests are represented.

Did you know?
Most professionals recommend reserving around 3% of the purchase price of a property to cover closing costs. 
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HST Rebates for Investors in Condos

Investing in condos can be a lucrative venture, but it’s important to understand the ins and outs of the process. Investors need to be aware of the HST (Harmonized Sales Tax) rebates associated with condo purchases. In this article, we’ll dive into the details and shed some light on this topic.

Understanding HST in Condo Purchases

The HST (harmonized sales tax) is typically included in the purchase price when you purchase a condo. If you plan to move into the property yourself or have a family member who will, there’s not much else you need to worry about regarding HST.

However, things get a bit more complex if you’re an investor. On the final closing of the condo, you’ll be charged HST again. You can get 100% of your HST rebate back if you file for it within one year and provide the government with a one-year rental lease agreement. 

This agreement proves that you’ve rented out the unit in the rental market. To get more insights into this process, check out the video we’ve included.

Selling Pre-Construction Condos Before Closing: Assignments

So, you’ve invested in a pre-construction condo, but life throws you a curveball, or you may simply want to cash in your profits before the unit or building is complete. That’s where assignments come into play. Assignments allow you to transfer your contract with the builder to a buyer. Since no real property exists, it’s like passing on the torch to someone else.

Assignment flipping used to be quite popular, but it has slowed down a bit due to the Canada Revenue Agency’s (CRA) new stance on it. The CRA is considering applying income tax to the capital gains on assignment sales if they determine that you intend to flip the unit before closing. However, if circumstances change or you want to secure your profits without closing on the unit, the right to assign offers you an exit strategy from your pre-construction contract.

Why You Should Avoid Selling Assignments on Your Own

Some people try to sell their assignments through platforms like Kijiji or by spreading the word among acquaintances. While this may seem like a tempting approach, I highly recommend against it. Let me tell you why.

Firstly, selling assignments without professional assistance makes it unlikely that you’ll get fair market value for your unit. You might sell well below its actual worth just to generate some interest, especially when using low-traffic media channels like Kijiji or Facebook.

Secondly, assignment sales involve much more paperwork and legal complexities than regular condo sales. It’s a headache waiting to happen if you’re not well-versed in the process. 

So, to save yourself from unnecessary stress, it’s better to seek the help of a pre-construction realtor or a team specializing in assignment sales. And guess what? We happen to be one of those experts! 

When you work with professionals, you have a significantly higher chance of receiving fair value for your unit. Plus, your commission will generally be minimal compared to the price difference you’ll make compared to selling it on your own.

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The Myth of Selling Pre-Construction Condos at a Discount

Let’s address another common misconception surrounding pre-construction condos: the notion that you can always sell them at a discount. This is simply not true, and I’ll explain why.

The market value of a pre-construction condo depends on various factors, such as the unit itself and the development it belongs to. Some projects may have prices set 5% below market value, while others may be listed at 10% above market value. 

There are instances where a project priced 10% below market value may have specific units priced 10% higher than their resale market value. It all comes down to the unique characteristics of each project and unit.

When you buy a pre-construction condo with a down payment of 20% or less, you can leverage 100% of the asset’s appreciation at a five-to-one ratio. Over the past two decades, from 1997 to 2017, properties in downtown Toronto’s C01 area have seen an average appreciation of nearly 11.56% per year before adjusting for inflation. 

This shows that time in the market is more important than trying to time the market.

Did you know?
In Q1 2023, 4,519 condominium apartment sales were reported through TRREB’s MLS® System. This is 42.9% less than the 7,909 sales recorded in Q1 2022.  


Why is it important to prioritize the builder’s reputation when investing in pre-construction condos?

Choosing a reputable builder with a solid track record is crucial for several reasons. Firstly, the builder’s post-closing history plays a significant role in determining the resale value of your condo when you decide to sell it. Additionally, reputable builders are more likely to complete projects on time and without unnecessary delays, ensuring a smooth investment experience.

What is the 10-day “cooling-off” period, and how does it benefit buyers in the pre-construction condo market?

The 10-day cooling-off period is a legal requirement in Ontario for new condominium purchases. During this period, buyers have ten days from the date of signing the agreement to review the Purchase and Sale Agreement with a lawyer, understand closing costs, and explore other comparable pre-construction condo projects. This period allows buyers to secure the purchase price and incentives offered by the builder and ensure they are making a wise investment decision.

What is the difference between interim occupancy and final closing in pre-construction condos?

Interim occupancy is when buyers can move into their unit and live in it, even though they do not officially own it yet. This period occurs before the building is registered. The final closing, on the other hand, is when the builder registers the Condo Corporation with the City, the remaining balance is paid, and the buyer officially receives the title for the unit.

What are interim occupancy fees, and how do they differ from monthly carrying costs after the final closing?

During the interim occupancy period, buyers are required to pay temporary occupancy fees to the builder. These fees cover the interest payment on 80% of the purchase price that the buyer borrowed, assuming a 20% down payment. The interest payment is based on the Bank of Canada key rate. In addition to the interest payment, buyers also pay maintenance fees for the general upkeep of the building and shared facilities. Monthly carrying costs after the final closing may be higher and typically include mortgage payments, property taxes, and other expenses.

What are closing costs, and why is it important to review them with a lawyer?

Closing costs are the expenses incurred when purchasing a property and completing the transaction. In pre-construction condos, they may include development fees, levies, property taxes, legal fees, and land transfer taxes. It is crucial to have a lawyer review the agreement within the 10-day cooling-off period to understand and budget for these costs properly.

How do HST rebates work for investors in pre-construction condos?

When purchasing a condo as an investor, the HST (Harmonized Sales Tax) is initially included in the purchase price. On the final closing, investors are charged HST again. However, they can get 100% of their HST rebate back by filing for it within one year and providing the government with a one-year rental lease agreement, proving that the unit has been rented out in the rental market.

What are assignments in pre-construction condos, and why is it advisable to seek professional assistance when selling them?

Assignments allow buyers to transfer their pre-construction contract with the builder to another buyer. It can be useful if circumstances change or if the investor wants to secure profits without closing on the unit. However, the process involves paperwork and legal complexities. It is advisable to seek the help of a pre-construction realtor or a team specializing in assignment sales to ensure fair market value and navigate the process efficiently.

Can pre-construction condos always be sold at a discount?

No, the market value of a pre-construction condo depends on various factors, and they are not always sold at a discount. Prices can be set below or above market value based on the specific project and unit. It is important to consider the unique characteristics of each project and unit and focus on the long-term appreciation potential rather than trying to time the market.

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Pre Construction Condo Investment – Final Words

Pre-construction condominiums can be a wise investment for living or renting, but they need a lot of research and preparation. Check the builder’s reputation, have a lawyer evaluate the contract, understand the occupancy and closing stages, budget for closing fees and HST rebates, think about assignment choices, and avoid unrealistic expectations. 

By considering these factors and completing comprehensive research, you can make educated decisions and boost the likelihood of successful investment in pre-construction condos.

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