With condos and low-rise development booming in major cities across Canada, many buyers are purchasing homes pre-construction.
Buying pre-construction means purchasing a house or condo before it’s finished— sometimes before construction has even begun. It’s common to buy into a condo development well before the building is complete—even before construction has begun—and this can be years before the estimated completion date. When buying freehold pre-construction, the purchase is typically closer to the move-in date in comparison to pre-construction condos.
|You buy using predicted pricing, for the time period when the building is registered with the city, upon completion.||You buy using today’s prices.|
|You see a layout and artists’ renditions, but plans can change before the building is complete.||You can see the property first-hand, including construction-finish quality and views.|
|You can choose finishes and even room layouts, (which could be subject to change by decision of the developers)||You buy the house as-is.|
|You can buy as an investor, but can’t find a renter until the unit is actually complete.||You can buy as an investor and start earning cash flow on day one once tenanted.|
|You typically pay a deposit of 5%–20% to the builder. Generally, the builder will take 5% down upon signing, with further instalments of 5% leading up to completion.||You pay a down payment up front of: 5% under $500,000, 5–10% between $500,000 and $1M, and 20% over $1M|
|You don’t get a mortgage until the building is registered with the city, which happens upon completion.||Your mortgage begins upon closing.|
|You must pay occupancy fees for the occupancy phase, meaning the time between getting the keys and the building’s actual registration as a condominium corporation. Think of this as rent to the builder once your unit is livable, but the building is not yet complete.||n/a|
An assignment sale is when you sell your interest in a purchase contract a new buyer.
You’ve put $80,000 down—20%—on a $400,000 unit. Nearing completion, you decide you want to sell the contract to buy that unit at that price from the builder, (since you technically have yet to purchase it). You find a suitable buyer and charge them the $80,000 you’ve already put down, and $50,000 for the contract stating they now are entitled to purchase this unit. They pay you a total of $130,000 ($80,000 + $50,000) and will need to take out a mortgage of the remainder owed to the builder upon registration: $320,000.
Assignment sales can be profitable for the sellers when markets are increasing rapidly, like Toronto in 2005. If the builder sells suites in a certain building, buyers will be easier to find, as they are scarce. If we look at Toronto in 2016, however, there are so many pre-construction and resale condo units available for sale that assignment sales are very difficult to sell, as potential buyers can just buy units from the builder without paying you a premium for your contract.
There are also limitations on assignment sales, depending on the builder. Some purchase contracts will have a clause restricting you from an assignment sale. Others will allow assignment sales, but only after a certain time period, and will include an administrative fee.