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How To Choose A Pre-Construction Condo In GTA?

Selecting a pre-construction condo in the Greater Toronto Area (GTA) is a major financial decision for any investor or homebuyer. With the GTA’s real estate market experiencing a dynamic shift, understanding the nitty gritties of pre-construction investments is more crucial than ever. In 2021, the Building Industry and Land Development Association (BILD) reported that the GTA saw over 48,000 new home sales, with a significant portion being pre-construction units. This trend underscores the growing interest in this sector.

When considering a pre-construction condo project, several key factors come into play, from working with a reputable developer and pre-construction specialist in your city to location and potential for appreciation. 

As a first-time pre-construction buyer or an investor, the appeal of pre-construction projects in the GTA is multifaceted. You are often drawn to the prospect of customization, the allure of brand-new living spaces, and the potential for price appreciation. 

While one condo might offer these benefits, it might not be in a location with a high potential for appreciation. On the other hand, a new condo project with not too many amenities would be better for being in a major city. That’s why it is important for you as a buyer to be confident in your choice and that requires research and advice. We hope through this blog on How To Choose A Pre-Construction Project In GTA we are able to help you find a successful pre-construction investment. 

How to Choose A Pre-Construction Condo as a First-Home Buyer? 

As a first-time home buyer planning to purchase a pre-construction condo, you should aim at projects that offer move-in within the next 12 months. While you will have to pay the initial deposit of 10-20% quicker than a regular new condo project, you’ll be able to save money on closing costs. Also, pre-construction condos are priced lower than resale condos, making it a rewarding investment for first home buyers. 

Here’s how to find a good pre-construction condo project as a first home buyer: 

1. Understand the Market Trends

By understanding market trends, you’ll know when is the right time to purchase. Condo prices have reduced since 2021 but interest rates have gone up, so buying a pre-construction condo today is a wise decision, since you don’t have to worry about the mortgage rate until closing. According to the Canadian Real Estate Association (CREA), the national average home price is around CAD 655,507 as of November 2023. While this includes all types of properties, it gives a sense of the overall market. 

2. Research the Developer

Look for developers with a strong track record in completing projects on time and to a high standard. Websites like Livabl provide information on various developers and their projects across Canada. Also take a look at forums like Reddit and Quora where people share their personal experiences dealing with a particular developer. 

3. Location Trumps Everything 

Consider the neighbourhood’s potential for growth, access to public transportation, amenities, schools, and green spaces. The Canada Mortgage and Housing Corporation (CMHC) offers valuable insights into neighbourhood demographics and trends. If you are planning to have kids in the near future, also look for neighbourhoods with good daycare centres, gardens and play areas, and schools.  

4. Understand the Financials

As a first-home buyer, it’s vital to be clear on your budget and the additional costs involved in buying a pre-construction condo. This includes down payments, which are typically staggered over a period, closing costs, and potential development levies. We’ve created an in-depth blog that highlights all closing costs that a new home buyer has to pay with a breakdown and timeline of payment. Read more here. 

floor plan of a condo in brampton

5. Review the Floor Plans and Finishes

Since you’re buying based on plans and not a physical space, it’s key to visualise how the layout will accommodate your daily life. Assess the size and shape of each room, the flow between spaces, and how well it aligns with your lifestyle needs. For instance, if you work from home, ensure there’s a comfortable space that can be dedicated as a home office.

The quality of finishes significantly impacts the aesthetics and longevity of your home. Investigate the types of materials the developer plans to use. Sometimes, developers offer showrooms where you can see and feel proposed materials, so make sure to visit their sales office. 

6. Consider the Timeline

Pre-construction condos can have long timelines before they are move-in ready, anywhere between a few months to five years. As a first time buyer, you need to have a backup plan and be prepared for potential delays. If you want to avoid these delays, you can choose to purchase an assignment sale. It is a pre-construction condo that the original buyer assigned to a new buyer. These condos are nearing closing, so the risk of long delays is low. 

7. Legal Review

In Canada, pre-construction condo buyers benefit from a 10-day cooling-off period. This time starts when you receive the purchase agreement or condo disclosure statement. During this time consult with your lawyer, so they can review the contract, clarifying complex terms and highlighting important clauses related to project delays, changes, and cancellation terms. 

Your lawyer will also examine financial commitments in the contract, such as payment schedules, deposit requirements, and any additional costs like development levies. If you’re not comfortable with the contract after legal consultation, you can withdraw from the deal without penalty within these 10 days. 

real estate investor talking with a construction manager on  site

How to Choose A Pre-Construction Condo as an Investor? 

As an investor, your process for choosing a pre-construction condo is slightly complicated. While finding a project that appreciates in value, you also have to make sure the location is accessible by public transit and highways, so you can rent out the unit. 

Here’s how to find a good pre-construction condo project as an investor: 

1. Analyse Economic Indicators

Start by examining economic indicators like employment rates, population growth, and infrastructure developments in cities you’re interested in purchasing. Cities with growing economies often present better investment opportunities. Some cities we recommend are Mississauga, Hamilton, St Catherines, Kitchener-Waterloo, and Barrie in Ontario and Calgary and Edmonton in Alberta. These cities have growing populations and colleges and universities that attract students from Canada and across the globe. 

2. Pinpointing High-Demand Locations

Focus on neighbourhoods with high rental demand but low condo supply. Look for areas with new employment opportunities, university expansions, or new transit lines. Only by working with a local pre-construction specialist will you get this information as it’s hyperlocal.  Another great resource is Transit Expansion Projects by the Government of Canada, which highlights areas with upcoming transit infrastructure and then you analyse the demand for housing there. 

3. Timing the Market

Historically, the Canadian real estate market has shown patterns of ebb and flow. Most pre-construction condo projects are launched in December and they usually offer better incentives than regular projects. Tools like the Teranet-National Bank House Price Index can help you track historical price trends.

4. Scrutinising the Developer’s Portfolio

Research the developer’s previous projects for quality and timeliness. Visit forums to get a deeper insight on buyers’ personal experience with a particular developer. If you are a new investor, stick to established developers in bigger cities like Toronto, Mississauga, and Kitchener. 

toronto skyline against a manicured lawn

5. Rental Yield and Appreciation Potential

As an investor, these two are the most important financially for you. Look for condos in areas where rents are rising. While these condos will cost more, they will be easier to rent out. You can also visit Canada Mortgage and Housing Corporation (CMHC) for reports on rental market trends and housing market analysis.

6. Understanding Tax Implications for Investors

Canada Revenue Agency is your best resource for guidelines on rental income and property investment taxes. If you don’t have an accountant yet, it’s a good time to hire one. They will analyse your investment portfolio and help you understand your tax implications. 

7. Assessing Condo Fees and Management

Many people forget about condo fees, which can range between $300 to $700 per month, which adds on to your monthly mortgage payments. The reputation of the condo management matters too because you want to make sure your tenants receive immediate service from them. Lower fees can increase your net rental income, but poor management can affect property values.

8. Networking with Industry Professionals

Connect with real estate agents, other investors, and industry experts. Networking can provide insider information and opportunities to purchase condo units during VIP or friends and family sales. This means you can choose a condo with the best views and floorplans, thereby making it easier to find tenants. 

Through the last few years, we’ve helped many first home buyers and investors in Canada purchase condos in the best development projects. That Pre-Construction Guy is happy to help you find an excellent new condo that meets all your requirements. Contact us to book an appointment. 

Frequently asked questions

1. Are pre-construction condos a great investment in 2024? 

Yes, pre-construction condos continue to be a great investment, even in 2024. They are priced lower than resale condos, so you are saving some money right away. One of the advantages of investing in pre-construction condos is the flexibility it offers in terms of financing. Unlike purchasing a resale property, where mortgage pre-approval is often required before making an offer, pre-construction condos allow you to book a unit without this prerequisite. 

You can secure a unit and continue to pay the deposit over time, using either personal funds or a loan. However, it’s important to note that at the time of closing, a mortgage approval will be necessary. 

two people discussing investment portfolio on an ipad

2. What are the risks of buying a pre-construction project in GTA? 

Buying a pre-construction unit comes with certain risks. One of the primary concerns is project delays. Construction timelines can be extended due to various factors, impacting your move-in date or investment plans. There’s also the risk of the final product differing from initial promises or expectations, including changes in unit layout, finishes, or building amenities. 

Market fluctuations can affect property value, potentially leading to a decrease in the unit’s worth by the time of completion. Lastly, though rare, the builder might run into financial issues, which would either lead to project cancelation or prolonged delays.

3. Why are pre-construction condos a better investment than townhouses or detached houses? 

Pre-construction condos make a better investment because they have a lower entry price point, making them more accessible. Secondly, condos in urban centers are in high demand, especially among young professionals and downsizers, making them easier to rent out. Maintenance and upkeep are generally simpler and less costly, as exterior maintenance is handled by the condo corporation. Lastly, the residents enjoy modern amenities like indoor pools, gyms, and co-working spaces and are located in desirable areas with good access to services and transportation. 

4. How can I make money by buying a pre-construction condo? 

When you buy early in the development phase, you often secure a lower price, and as the property value increases by the time it’s completed, you can realise significant capital gains if you choose to sell. In Canada, 50% of your capital gains are taxable. If you want to avoid paying this tax, you will have to make this condo your primary residence for 2 years minimum. Post this duration, you can rent out the condo to create a steady flow of income. 

For more pre-construction projects related information, follow That Pre-Construction Guy.

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