For many would-be purchasers, the world of pre-construction real estate is punctuated with gossip that gives it the false representation of being a dishonest industry. While buying a unit from a floor plan is somewhat different than purchasing a resale suite — where you can walk around in and see for yourself — it’s also a largely misunderstood process.
Here, we break down some of the common misconceptions of the preconstruction market:
Myth: Developers purposely extend the “Interim Occupancy Period” for as long as they can to pocket as many occupancy fees as possible
Fact: When you’re buying a pre-construction unit, your building will have what’s called an “interim occupancy period” which is when you can legally live in your new suite, but the building isn’t quite finished and can’t be registered. This can last anywhere from a few months to a year.
Until the building is registered, you will be paying “occupancy fees,” instead of mortgage payments. These go directly to the developer, so it’s a common misconception that developers benefit from this period and try to prolong it as much as they can. What is not as commonly known is that there are actually stipulations in the Condominium Act that address how these fees are calculated and prevent companies from earning a profit this way.
Myth: Once the developer has handed over the keys to the buyer, they don’t care about pre-delivery inspection fixes
Fact: A developer’s reputation is critical, especially if they want to continue selling their units prior to construction — and developers know this. They want to stay on top of customer service. When you purchase a new home in Canada, whether it’s a detached house or a condominium unit, builders are obligated to let you tour the completed home. This allows you to learn about how ventilating and heating work, and make note of anything that is damaged, incomplete or missing. Developers are usually happy to do this for you.
Buyers also have the advantage of Tarion, an organization that protects Ontario buyers’ interests by protecting consumers in the event that builders don’t fulfil their obligations. Tarion gives out industry awards every year for the development firms that deliver the best customer service in this respect. They also provide coverage for workmanship in the unit for up to one year from occupancy.
Myth: Only irresponsible developers don’t deliver their buildings by the scheduled occupancy date
Fact: It can be challenging to estimate exactly when a building will be ready for occupancy before construction has even begun, but most developers take the potential for unforeseen complications into account when they give you an estimate.
As per Tarion stipulations, if the project is delayed past a certain date, you may be eligible for compensation.
Myth: Developers will work in a bunch of surprise costs during the final closing process
Fact: Like with any real estate purchase, there will be costs other than just the purchase price. These include legal fees, closing costs and HST -- among others. You can learn more about closing costs here.
However, none of these should come as a surprise to you, the purchaser. Your Agreement of Purchase and Sale should outline all the applicable fees, caps and levies, and when you are represented by experienced platinum agents like GTA-Homes, these will all be explained to you beforehand. It’s a great idea to work with a realtor that’s familiar with the purchase agreement, clauses, HST rebate rules and is knowledgeable about market trends.
During what we call the “ten-day-cooling-period,” it’s a good idea for you to have a lawyer who specializes in preconstruction real estate to review your purchase package for any “hidden” fees, although builder contracts tend to be pretty transparent in today’s market.
Myth: When you buy brand new you have to pay HST
Homebuyers exploring the idea of purchasing a new preconstruction property are often confused about HST and how the rebate works, not to mention, all the myths out there about who pays it doesn’t help. The HST rebate can add up to a sizeable sum and could mean upwards of $35,000 difference to your bottom line, so here are the facts.
Fact: If you buy a new condo prior to completion, you are required to pay the harmonized sales tax (HST) on the purchase price. There are two ways to pay this tax: (1) with cash at closing or (2) through your mortgage. If the builder has included HST in the purchase price, then it will automatically be included in your mortgage. However, if the price list says “$600,000 plus HST”, be prepared to pay the tax upfront. In most cases, when buying preconstruction, you’ll receive the HST rebate right away in the form of a discounted purchase price, most developers already factor the HST rebate into their price list.
In the event that the HST rebate is not included in the purchase price and you plan to move into the property, you must apply for the New Home Rebate (NHR). Based on the fact that you or an immediate family member will occupy the property as the primary residence, for at least the first year after closing, you will receive an HST rebate.
If you plan on selling the property before the initial one-year window, the Canada Revenue Agency (CRA) will require you to pay the HST rebate in full. Nonetheless, landlords who purchase a preconstruction property may be eligible for the New Residential Rental Property Rebate which is open to Canadian and foreign investors alike.
Myth: You get a better deal if you buy directly from the developer
Fact: Almost all builders hire a marketing company to promote pre-construction sales, but often those marketing professionals look to Platinum Brokers — like us — to advertise, run campaigns and educate buyers, all of which helps firm up sales. Lenders usually require a building to have 75 per cent of its units sold before they agree to fund the project and construction can begin. Developers know that time is money and they know they can count on brokers to sell buildings quickly. By the time the builders have opened the project to the public, buyers can indeed choose to purchase directly from the developer, but prices will likely have increased significantly and your choice of units will be limited.