This always seems to be a hotly debated topic around the office and although there are pros and cons to buying preconstruction vs. resale, it seems to make less and less sense for homebuyers these days.
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The History or Pre-Construction Condos in Toronto
Once upon a time, the time and risk involved in purchasing a preconstruction property was built into the price and meant that buyers could potentially buy a home for less. At the time this was a needed incentive for consumers to take on this additional risk, or to spend an extra few years renting while they wait for their new home to be built. But once this industry became more established, and an ever-increasing home price in Toronto became a given as our population boomed, the investors started to move in.
The preconstruction game became an easy way to buy ‘futures’ in Toronto real estate and the investors lined up in droves. There were new and growing line ups at preconstruction sales centres, and flashy VIP events that ensured buyers could have first access to projects. And as the demand grew for the asset class, so did the price.
It was no longer essential to entice buyers with discounts, and the perceived risk of these projects evaporated almost overnight. Very soon, it was costing buyers more to buy a preconstruction unit than a resale unit around the corner, which essentially meant that buyers were starting to pay a premium for the increased risk associated with preconstruction and the privilege just to wait in line.
Fast-Forward to Today’s Pre-Construction Market
Now investors with excess money to spend, and multiple properties to live in, could afford to take the additional risk; and many home buyers who were stuck looking for a place to call their own just got caught up in the whirlwind of the industry.
And unfortunately, a lot of these home buyers buying preconstruction didn’t really understand what they were buying, or what the premium was really for and many of these misconceptions still remain around the industry.
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Things to Consider when it Comes to Pre-Construction
The biggest misconception of all that consumers make around preconstruction home buying is that they assume they are buying real estate.. but they’re not. Buying a preconstruction property is akin to buying the promise of real estate, but it does not actually provide a deed to anything until closing and there’s the rub. As I mentioned above, there’s a lot more risk involved in buying a promise over a deed, and there’s a lot more complexities to consider. Just to name a few of these potential hazards buyers may face in teh preconstruction world:
- Delays in construction: Construction projects may face delays due to various reasons such as weather, labor shortages, or permit issues. Buyers might have to wait longer than anticipated before they can move into their new home, causing inconvenience and potential financial strain
- Additional Unexpected Costs: While the initial price might seem attractive, there’s always additional costs such as upgrades, closing fees, and property taxes, which can significantly impact the overall affordability of the property.
- Discrepancies between the promises and actual finished product: Since preconstruction properties are not yet built, buyers often have to make purchasing decisions based on renderings, floor plans, and sales pitches from developers, which may not always accurately reflect the final product
- Builder Insolvency: In rare cases, developers may face financial difficulties or go bankrupt during the construction process, leaving buyers in limbo with unfinished properties or jeopardized deposits. It’s essential to research the reputation and financial stability of the developer before committing to a preconstruction purchase
But If you want to read more about some of the horror stories associated with preconstruction, you can read about stolen deposits on the Toronto Realty Blog here. Or more about cancelled projects and voided warranties here.
But I don’t need to tell you every project gone wrong or even list all the issues surrounding preconstruction, you just need to know that it’s not the same thing as buying real estate!
What to Know About Buying Pre-Construction in Toronto
You are buying a promise and the first thing you should ask yourself when buying a promise is who is making this promise and have they kept their promises in the past! The second thing you should ask yourself is if I can buy a similar product across the street for less and move into it tomorrow, why would I pay a premium for this additional risk and increased wait time?
There are of course reasons to buy preconstruction, the potential to customize your own space comes to mind, and it does make sense for some home owners. But in a city locked in an affordability crisis and buyers requiring homes sooner rather than later, I think the allure for many is gone.
Do you have more questions about pre-con in Toronto? We’re happy to answer! Get in touch by by calling 416.642.2660 or emailing admin@torontorealtygroup.com.
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