Buying a Pre-Construction Condo on an Installment Plan

One look at the downtown Toronto skyline, which is filled with condominiums, and you will see dozens of cranes in the sky.

At the same time, fresh data show that new construction has slowed considerably in the last year, meaning fewer new condominium developments are coming to market. It is not really a surprise because the Bank of Canada’s (BoC) higher interest rates are still travelling through the Canadian economy.

But you may be in the market for one of these buildings that are currently under construction.

Are you buying a pre-construction condo on an installment plan? If so, it is imperative to equip yourself with the knowledge to ensure you are making the right purchasing decision for you and your wallet.

Here are nine things that you need to know about buying a pre-construction condo on an installment plan:

1. A Deposit Structure

When you are buying a pre-construction condo, you will still need to put down a down payment. It will range from five percent to 20 percent. However, it will be paid in installments, giving you additional time to save as the building is being constructed.

2. A Deposit Structure Part Two

Once you purchase a development, you will need to know the length of time you have to make payments. So, in certain condominium buildings, you might need to pay five percent up front and then two percent after 100 days, 300 days, or 600 days. Be sure to inquire about this portion.

3. Phantom Rent

Yes, you will still be paying rent (sort of). There is a span between the day you move into your condo unit and the moment you officially accept ownership, which is also known as interim occupancy. This could range from a couple of weeks to a few months. You will not be paying your mortgage during this time, but you will still make occupancy fee payments as you gain access to your unit, something that the Canadian real estate sector calls “phantom rent.”

4. Condo Reserve Fund

Purchasing a pre-construction condo also requires contributing to the condo reserve fund. This consists of adding two months’ worth of fees to the building’s emergency fund. It might depend on the builder or management, but your contribution is typically required at the time of the closing.

5. Ten-Day Cooling Off Period

Every province or municipality has its own set of rules and regulations. In British Columbia and Ontario, for example, every homebuyer of a new condominium will be extended ten days (calendar days and not business days) to reconsider their purchase. The cooling-off period allows the purchaser to have the agreement reviewed by the attorney, obtain financing, or think about the most significant buying decision of the person’s life.

6. Registration, Please

When a condo is being constructed from the ground up, the building is not yet registered. Instead, it needs to pass all of the city’s inspections and go through the entire process of becoming a legal entity. Throughout the registration period, condo ownership is transferred to the buyers, meaning the mortgage also goes into effect. Ultimately, the buyers become the owners.

That said, be prepared for the registration process to take between three months and two years.

7. Inspection

Can you order an inspection for a brand-new unit? Yes! You have the option of inspecting it, which is part of the entire buying process.

8. Selling a Pre-Construction Unit

Are you reconsidering owning a pre-construction condo? Yes, it is identified as an assignment sale. You can sell the purchase agreement to your apartment. However, there are two things you need to know: if your contract permits for these assignment sales and understand potential tax obligations.

9. Closing Costs

Yes, there will be closing costs. When the pre-construction condo is officially registered after it is built, you must cover all kinds of closing costs, representing between one percent and three percent of the original purchase price. Additionally, you might come across something called builder adjustments, which are applied to new construction projects, HST on appliances, and utility connection fees.

All About the Contract

In the end, it is vital to understand the details of your contract. All of the terms and conditions of your pre-construction condo are listed in the contract. Some may want a mortgage pre-approval. Others may require a 15 percent deposit. Doing your due diligence is paramount during the entire homebuying experience.