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Development Levy

If you’re on the hunt for a new condo, there’s a crucial term you need to add to your vocabulary: Development Charges. Although they might seem complex at first glance, getting a solid grasp of Development Charges is essential for making an informed purchase. In some cities in Canada, these charges can make up to 21-23% of the final condominium cost. Understanding this critical element can help you avoid surprises down the line and make a more secure investment.

What Are Development Charges?

Development Charges are fees levied by municipalities on new construction projects. They serve an essential purpose: to fund the growth-related costs that come with new real estate developments. The guiding principle here is straightforward: growth should fund itself. So, when a new condo complex springs up, it necessitates various forms of infrastructure— parks, roads, and sewage systems. Rather than passing these costs on taxpayers at large, they are collected through Development Charges.

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Why Are You Charged Development Levies? 

To give you a better understanding, let’s take a real-world scenario. Suppose a new condo development is in the works in Toronto. Prior to the project, the city may need to invest in various infrastructural elements, such as extending the public transit routes, updating local sewer systems, or constructing new public schools to accommodate the incoming population. According to a 2020 report by the City of Toronto, Development Charges collected in 2020 amounted to $204 million, showcasing their importance in urban planning.

How Are These Charges Calculated?

Cities in Canada assess the total value of upcoming growth-related projects and divide that by the projected growth figures. Various factors such as the project’s scale and nature contribute to the final rate, which is typically charged per square foot. 

 

What this means for you, the condo buyer, is that your Development Charges will vary based on your unit’s size. Although developers initially foot the bill when they secure a building permit, this expense inevitably trickles down to you during the final closing. Keep in mind, these rates are subject to change. So the amount you initially agree upon could differ from your final charge.

Capped Development Charges: Your Safety Net

Now, you might be wondering, “How can I protect myself from unexpected hikes in these charges?” The solution lies in Capped Development Charges. This is an agreed-upon fixed amount for Development Charges that you and the developer settle on and incorporate into your Purchase Agreement. This cap ensures that you won’t face any unforeseen spikes, providing a level of financial certainty in your investment.

Advantages of Capped Development Charges:

  • Financial Certainty: You’ll know exactly how much you owe, no last-minute surprises.
  • Budget-Friendly: Helps you plan your finances better, making the condo purchase less stressful.
  • Negotiating Power: Having a cap in place can also give you a better standing when negotiating other aspects of your condo purchase.

If you’re eyeing real estate in Alberta or Manitoba, you’re in for some good news. A growing number of developments in these provinces are offering zero Development Charges. This means that the builder will either absorb the cost or roll it into the total price of the condo.

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In our next part, we talk about the pre-occupancy period and what it means to your journey in buying a pre-construction unit. Continue reading here