Why Buyers should consider Pre-Construction Condos in the GTA
It feels like the current real estate market in the Greater Toronto Area has ten times the number of Buyers looking for houses and condos then there is inventory. Every listing seems to have 5 to 10 offers on offer date and we know there is only 1 clear winner. The Seller!
The Buyer who “wins” the bid, has paid above asking and often significantly. We read about these news stories, online and in the newspapers where houses have sold hundreds of thousands above asking. Even old condos are fetching $50,000+ above asking.
So Buyers with deep pockets, large deposits can make up the difference from a bank’s appraisal value and the purchase price, but there are many who can’t make up this difference and can’t compete in this market. However, there are Buyers with solid jobs and good incomes that can save for the future and for them, a pre-construction condo in the GTA can be a means to home ownership in this crazy Toronto market!
The benefits and disadvantages of buying a pre-construction condos in the GTA.
Benefits of Buying a pre-construction condo
- You don’t have to compete for a property every time
- Buy with only 5% down upfront
- You’re forced to save, in order to pay your additional deposits (or use a line of credit to help you)
- You feel good that you’ve bought a condo (no more stress) and can a plan for the upcoming years
- Benefit from equity increases, while you wait for the condo to be built – better than renting, waiting and praying for prices to fall.
- You move into a new condo, it’s your home and you decorate and live in it as you feel.
Disadvantages of Buying a pre-construction condo
- May have to live through construction, noise and dust for several months or longer
- Require 20% of purchase price which may be a challenge for some.
- Have to deal with higher closing costs than a resale condo
- Buy from a floor plan and can’t see the finished space before buying
- If you can’t close the deal on competition, you may forfeit your deposit and any increases of value. Often you have an assignment clause, to be able to “assign” (sell) it before closing to a new buyer. Assigning is hard when values are stagnant, and easy when they’ve gone up. You would get your deposit and split the increase of value with the new buyer.
Buy a Pre-Construction Condo as if Buying a Stock
Consider, buying a pre-construction condo as a long term stock investment. You’ve invested your money and now you can’t touch it for several years. You won’t worry or think about the market place. You believe steadfastly that values will go up in the long run. Your goal is to save and purchase more stocks (happens when you pay the additional deposits). Eventually, the condo will be ready for you to move in. You will finance what you owe, your lawyer will take care of all the legal matters and you’ll be a proud homeowner.
However, if you are a worry wort and routinely worry about money. Like, how you would save for your next deposit and always thinking about what’s going to happen in the housing market, etc. Then you should not invest in pre-construction condos. Keep your money under your pillow and bank account. Just keep on renting or live at home and SAVE! Take up meditation, enjoy your life. The stress ain’t worth risking your health. Maybe in a year you can get back into the resale market when you have more money saved.
If you have questions regarding purchasing a pre-construction condo in the GTA- email, text or call me and let’s talk.
Stay tuned to my next blog: What Sellers do matters when Selling!
Jas Jagpal, Broker, CNE, ASA