What You Need to Know About Buying a Pre-Construction Condo

Sure the thought of buying a new condo at a cheaper price sounds great, but it’s not as easy as it seems.

Every day people invest their savings in to new condos that are being built in the GTA not knowing the financial risk and potential losses that they may encounter. That’s why we’re providing you with the information you need before signing on that dotted line.

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Here is some important information to take into account before buying pre-construction in Toronto:

Pre-construction costs less

People tend to buy pre-construction due to the cheaper cost over buying resale. That’s not always the case. At the time of closing, there are usually additional costs that people don’t account for such as connection fees, reserve fund fees, and taxes that are on average 1.5% of the purchase price. That’s why it’s in your best interest to get a cap on these fees at the time of signing your agreement.

HST on Pre-construction

When buying a resale property the HST cost is included in the listed price. When buying pre-construction in Toronto, HST is added to the listed price, but if you’re living in the unit you are eligible for a full rebate which is received after the final closing. If you’re renting the unit, you’re still eligible for a 40-50% rebate. So remember, if you’re looking for an income property buying a new construction is going to cost you more in taxes!

Putting a Down Payment/Deposit on Pre-construction 

When you pay your down payment on a new construction, unlike resale homes you don’t need to provide all of the deposit at once. There’s an amount owed every 30-90 days until 10-25% of the purchase price has been paid. This is compared to the 5% that is necessary for a down payment on a resale home which in most cases gains interest and that isn’t the case for a new construction.


Once the agreement is signed, every buyer receives a ’10 day cooling off period’. This gives the buyer 10 days to opt out of the deal before it becomes valid. This is your opportunity to take these documents to your real estate lawyer for review and find anything that may be a deal breaker before you are obligated to fulfill the terms of the contract.

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Once you’ve paid your deposit and signed your contract, you’ll be informed of an ‘occupancy date’ which could vary greatly depending on when you signed your purchase contract in relation to when construction will be finished. Also, in most cases the occupancy date will be pushed back multiple times – the average delay time can be 3-6 months or more. And just because you moved in doesn’t mean the construction is over, so be prepared to be living in a construction zone as common elements and units on higher floors get finished.

How Long is Interim Occupancy?

Once a portion of units have been completed they will allow the buyer’s to move into these units even if construction is still continuing in other areas of the building. You won’t own the unit as the building is not complete and is yet to be registered with the city (registration normally takes 3-6 months but could take up to two years if problems arise). The issue with this is you’ll now be paying ‘occupancy fees’. These are fees that some people call ‘phantom rent’. As the builder has yet to receive any money from your deposit until final closing (in the lawyer’s trust account) they’ll ask for a monthly fee which is generally equivalent to the interest on the amount outstanding on the purchase price.

Financing a Pre-construction Unit

Before property hunting, people are generally pre-approved by a financial institution for a mortgage so they’re aware of what they can afford to buy. Due to the delays of most building constructions this can lead to issues at final closing. After 3 years of building, some people can have drastic financial changes in their lives such as loss of job or an increase in debt. In this case, once it’s time to finalize the deal they are no longer approved and cannot afford the property. There are options to sell your contract to someone else but if you can’t find someone to pay enough you will lose money and if you can’t find a buyer at all, the builder will keep your deposit and you will lose it all.

So the next time you’re thinking about buying pre-construction in Toronto over a resale condo, make sure you know the facts by talking to a real estate agent or real estate lawyer. Sales people who work for the builders will give you all of the dazzling features and perks of living in a new construction but they’re not working for you, they’re working for the builder.

Have questions about buying pre-construction? Get in touch today, call 416.291.7372 or email us at hello@christinecowern.com with any questions or to set up a call. We’d love to work with you!

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